Distribution Available?

[Earl]

Comp. A & Comp. B co-sponsor a 401k plan. Comp. A stock is sold to Mega-Comp. C on 4/1/06.

Comp. A's Board, on 3/31/06, passed a resolution saying, "the Company will cease to be a participating "Employer" in the Plan effective as of the close of business on March 31, 2006".

I don't think that created a "distributable event" for the employees of Comp. A because it was not "termination of the plan" before the sale.

Am I correct? Or would this allow for distribution of 401k money for employees of Comp. A now working for Mega-Comp. C?

**************

I think that to allow for distributions they would have had to spin off one of the companies (A or B) from the A+B Plan and then A could have terminated pre-sale, thus allowing for distribution of assets. Without the spin-off, if plan terminated and distributed $, Comp B. would not be allowed to have a plan for a year.

Right?

**************

Is there any issue with a Trustee-to-Trustee transfer of the money from the A+B plan to the Mega-Co Plan now that Comp A is not a participating employer in the A+B Plan? (Although I don't know where else the money can go.)

Thanks

[Nate X]

This is kind of the exception to the rule. Since the plan was the “AB Plan” and NOT the “A Plan”, it would create a distributable event at the point when Company A stopped participating in the AB Plan.

I believe since the resolution to stop participation in the AB Plan was already completed, that a trustee to trustee transfer could NOT be done. Participants would have the choice whether to roll their balance into the new plan or not.

[Earl]

Great. I can take that to the bank, right?

thanks for taking the time.

[Nate X]

It's definitely a distributable event (General Counsel Memorandum 39824 of 1990).

[Earl]

Thank you again.

Awesome citation.