Are 401(k) Assets Distributable in these Transactions?

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I. Company B is a wholly owned subsidiary of Company A. 401(k) plan (Plan 2) covers only employees of Company B. However, less than 2% of Company B employees are eligible in Company A's 401(k) (Plan 1), but all other Company B employees are covered by Plan 2. Ten percent of Company B's employees (all of whom are eligible only for Plan 2) will be terminated from B and will be immediately employed by an unrelated Company Y. (No corporate transaction takes place between Company A or B and Company Y).

Assume the transferred employees from Company B to Y are doing the exact same job, in the same location and under the same supervision. Company Y assumes responsibility for administering and maintaining the same level of benefits for Plan 2's tranferred 401(k) assets. When a transferred employee terminates service from Company Y, Company Y will be responsible for offering the distribution options.

II. Three months after this transaction takes place, Company A will sell all of the assets of Company B (including the other 90% of Company B employees) to an unrelated Company Z. Plan 2 will terminate shortly afterwards. Company A, nor any other member in its controlled group, will have any association with Company Z after the asset sale.

1. Is Company Y administering Company B's plan because of the "same desk rule?" What if Company Y assumed sponsorship of the transferred assets under a new plan with the same level of benefits from Plan 2?

2. If we assume that the "same desk rule" applies in I., what is the effect of the later termination of Plan 2? Does Company A or B have responsibility to the previously transferred employees now in Company Y? Does Company Y have to give the transferred employees a choice between distribution or leaving the assets in a newly created plan?

3. What is Company A or B's responsibility to the other employees upon sale to Company Z and termination of Plan 2? Are the assets distributable to these employees because Plan 2 is terminating -- 401(k)(10)(A)(i)? What about the disposition of assets or subsidiary distribution options under 401(k)(10)(A)(ii)(iii)? How does the Plan 2 termination affect the viability of using these subsections (ii) and (iii) as authority to distribute?

4. What are Company A's options for the less than 2% of employees who will be transferred to Company Z and who were eligible under Plan 1, which is not terminating?