multiple employer plan

[Guest George Chimento]

Company A participates in a multiple employer plan. Company A will be merged into unrelated Company B, and its employees will participate in Company B's 401(k) plan after the merger date.

If Company A withdraws from the multiple employer plan on the day prior to the merger, will that be considered a "plan termination" so that its employees can receive distributions from the multiple employer plan under the "plan termination" exception of 401(k)(10)?

I think "yes." If Company A had sponsored its own plan and terminated it before the merger, 401(k)(10) would have permitted distribution. The only thing different here is that the multiple employer plan is not terminating because it will exist for other employers after Company A ceases particpation.

Alternatively, if it's not a 401(k)(10) plan termination, is the merger itself considered a "severance from employment", even though the Company A employees will work for Company B after the merger date ?

[Guest gfowler]

On the termination of the plan (for Company A) from the multiple employer plan, in order for a participating employer to 'terminate' their plan, they must withdraw from the multiple employer's plan and set up their own plan. In my experience with multiple employer plans we typically set up a plan for the departing participating employer and then terminate that plan and distribute the money to participants. Not sure if this helps answer your overall question, but just a quick clarification on terminating a participating employer's adoption of a multiple employer plan.

We arrived at this process because one plan cannot not have multiple plan terminations (which would happen if each adopting employer were allowed to terminate their plan inside the multiple employer plan).

[J Simmons]

On the termination of the plan (for Company A) from the multiple employer plan, in order for a participating employer to 'terminate' their plan, they must withdraw from the multiple employer's plan and set up their own plan. In my experience with multiple employer plans we typically set up a plan for the departing participating employer and then terminate that plan and distribute the money to participants. Not sure if this helps answer your overall question, but just a quick clarification on terminating a participating employer's adoption of a multiple employer plan.

We arrived at this process because one plan cannot not have multiple plan terminations (which would happen if each adopting employer were allowed to terminate their plan inside the multiple employer plan).

The approach concerns me because of the permanency requirement for qualification. If Company A sets up a spin-off plan when it withdraws from the MEP and then quickly turns around and terminates the newly set-up spin-off plan, that belies that the spin-off plan was intended to be permanent when set up. If the spin-off plan is not qualified, that would make attempting IRA rollovers hazardous, and there could also be implications for the MEP for having transferred some of its assets to the spin-off plan.

[spartytax]

George Chimento, was this issue ever resolved? What about the last question relating to the permanency requirement? I have essentially the same exact fact pattern and any insight would be helpful.