Plan spin-off - full vesting possible?

[Guest Troy S.]

Have a large client (well to us anyway, about 150 employees) with a small group they are looking to spin-off to a brand new company. They are currently covered by a 401(k)/Profit Sharing Plan which has a 2/20 vesting schedule, and are wondering if they can fully vest the employees to be spun-off into the new company/new plan. I was wondering if there are any legal issues with this? Seems like there should not be, but just wanted to make sure before we suggested this course of action. Any thoughts welcome.

[JanetM]

Need more facts. Normally you can do nice things like vest folks early. But if new company is related to original company and new company is all HCEs then you many have problem proving there is no discrimination. If new company will be unrelated to original company there should be no issues.

[Guest Troy S.]

Need more facts. Normally you can do nice things like vest folks early. But if new company is related to original company and new company is all HCEs then you many have problem proving there is no discrimination. If new company will be unrelated to original company there should be no issues.

Hi Janet,

Thanks for the response. This is a physician's group that is spinning off a surgery center. Two of the physicians from the old company will own 100% of the new company, however they will not be employees of the new company. In the new company, initially, there will be no HCE's, all NHCE's. In other words, it will only be NHCE's they want to fully vest in the old plan.

Let me know if you need more info.

[JanetM]

You should be fine vesting them all. Be careful of the ownership, you could have a control group or ASG on your hands depending on how many docs are involved.