Deadline for Adopting DB Plan?

[Scott]

Company A is spinning off its subsidiary, Company B. Effective as of the date of the spinoff, Company B will establish plans for its employees identical to those of Company A, including a 401(k) plan and a DB plan. As soon as possible after the spinoff, both Company A plans will transfer assets and liabilities for the Company B employees to the Company B plans.

I have always understood the general rule to be that an employer has until the earlier of the date that contributions are made to the plan or the end of the year in which the plan becomes effective to adopt a plan document. Thus, under Reg. Section 1.401(k)-1(a)(3)(iii)(A), Company B's 401(k) plan must be adopted no later than the spinoff date in order for employees to start make elective deferrals at that time.

I can't find any clear guidance with respect to the DB plan, however. No employer contributions will be made to the plan until some later date, so the general rule would say that Company B has until the end of the year of the spinoff to adopt a plan document. Would the fact that a transfer of assets and liabilities will occur shortly after the spinoff change that so that a plan document should be in place as of the spinoff date?

[JanetM]

DC plan must be adopted before deferrals can be made. Co Bs deferrals continue at the time of spin off then plan would have to adopted at spin off date. Asset normally follow at later date.

DB plan has time but plan must be done soon. First off no Trustee will accept the assets with out a Plan in place. Second you want to assure the participants that the plan continues.

[jpod]

As to the plan documents, why wouldn't you just produce an identical copy of each existing plan, change the names and dates, and voila? The employees are not going to a new employer, so the drafting issues we usually see in connection with that type of transaction are not present here.

Putting that aside, I agree with everything Janet said, but would further note that whether or not the trustee will agree to serve, I don't think you can have a tax-exempt trust unless and until you have a written plan.

[Guest mjb]

If there is no "plan" on the date of transfer what is the entity that qualified DB assets are to be transferred into? While RR 81-114 permits an employer to wait until the end of the employer's tax yr to adopt a DB plan for the purpose of making deductible contributions by the date for filing the employer's tax return for that yr, it does not permit the spinoff of Q plan assets to an entity that does not meet the reqirements of 401(a) at the time of the transfer and does not have a trustee because the employees will be taxed under rules of IRC 402(b) for benefits vested under a non qualified plan. I have never heard of a spinoff of Q plan assets into an entity that did not meet the requirements of 401(a) at the time of transfer and why would a plan sponsor want to take the risk of disqualfying the benefits spunoff to the new plan?

[masteff]

why wouldn't you just produce an identical copy of each existing plan, change the names and dates, and voila?

Just make sure it's a document worth perpetuating.... I've been on the tail end of spin offs done this way and the original documents were junk that we had to live w/ for years and finally paid big money to have restated.

[jpod]

masteff: Point well taken. However, because this is in effect a plan spin-off, there are certain changes which one might wish to make but can't (e.g., protected benefits, etc.). My suggestion was aimed at getting a clone document ready for Day 1. Clean up amendments - to the extent things can be cleaned up - can be done at a slightly more leisurely pace.