Plan Termination?

[wsp]

Employer sells assets of company to another entity effective 10/1/2006. Same employer is contracted by purchasing entity to run the company through the end of the year. All payroll will be run through the payroll of the selling company but will be paid for by the purchasing company. Any payment of benefits (premiums) will be handled in the same manner.

Who do these employees belong to? Is this a plan termination now? Or on 1/1/2007. All employees are continuing their employment in exactly same manner as they did on 9/30.

Plan was Safe Harbor Plan. If they notify the employees now of the impending termination and their intent to discontinue the matching contribution what does that do? Obviously the plan is no longer Safe Harbor but do we simply test and move on? Matching contributions are made quarterly and are current.

[RCK]

We need more information from the purchase agreement. That should make it clear who the employees belong to--are they still employees of the seller, who is essentially leasing them to the buyer, or are they employees of the buyer, but being paid by the payroll department of the seller as part of a transitional services agreement

[david rigby]

I'm no expert on this, but here goes:

If the EEs "belong" to the buyer, that implies they will get two W-2's for 2006, from two different employers. If they are being paid by the seller (possibly a convenience), will the seller's payroll system provide 2 W-2's?

[wsp]

I'm trying to get confirmation from my client on this. The client did say that they are allowing the participants to continue to defer though they won't be making any matching contributions. To me, and I'm certainly not sure...by allowing them to defer into the plan you are saying that they are still your employees. If it's a matter of convenience that they are running payrolls though they aren't truly employees and thus shouldn't be deferring at all. Correct?

[RCK]

If they are buyer's employees., they are not eligible for the plan. And unless there is a spinoff in place, taking the deferrals from their checks is wrong.

If they are seller's employees, they get the same terms as the other employees.

So yes, you are correct.

[david rigby]

But check to see if deferrals after the sale are (or should be) going to the buyer's plan.

[wsp]

Ok, employees belong to seller until January 1. Seller is responsible for all payroll, benefits etc etc. Buyer is reimbursing seller but only to the extent that the numbers are frozen (no pay raises etc). So it's ok that they are deferring and matching.

They are going to continue the match through the end of the quarter to maximize their own deferrals. By stopping safe harbor they would likely not only have to give up the remaining deferrals but have a refund as well. Deduction loss of their own deferrals exceeds the matching obligation.

So on 12/31 all employees are terminated except for 2 owners. We have a partial plan termination and all are 100% vested. Big deal because all already are....Just pay out the people and wait?

But effective 7/1 the company plans on opening up another store in different location. Do they move out of partial termination status once they rehire multiple employees? Do new employees have vesting schedule for p/s contributions? And what of the safe harbor status? Do we issue notice on 12/1 that the plan intends to be safe harbor for 2007 and then simply wait for the employees? None of them will be eligible until 1/1/2009. Do my clients effectively get maximum deferrals for 18 months with no matching obligation for their staff? Likely they will make all employees immediately eligible, but it just seems odd that they wouldn't have to.

[david rigby]

Do they move out of partial termination status once they rehire multiple employees?

I doubt there is any such thing as "partial termination status". It is an event (or possibly a series of events), dependent on a particular set of facts and circumstances. Only "affected participants" become vested, and it does not automatically create vesting for other (or new) participants. Several prior discussion threads; try the Search feature.