410(b) during spin off year

[Guest robin s vatalaro]

I am dealing w/ two companies that used to be a controlled group (A=parent and B=sub). 7/1/97 Company B was sold by Company A. Company B, both prior to and after the sale, has a group of non-union hourly employees that are specifically excluded from the plan. The salaried employees of B participated in A's plan. The hourly employees of B had their own separate plan, but with lesser benefits. ABT has always passed so there hasn't been an issue with excluding the hourly group from participation in the more generous plan.

At 7/1/97, the date A sold B (after the sale there is no more controlled group), the hourly plan for B terminated. The salaried employees of B that used to participate in A's plan, now have their own new plan effective 7/1/97. So for the short plan year 7/1/97 - 12/31/97 (this is a calendar year plan), B has a plan for salaried, but there is a huge group of hourly employees (there are more hourly employees than salaried) with no plan benefits at all.

I am not concerned about the first half of the year when A and B were still a controlled group. I am however very concerned about B's ABT for the second half of the year (hasn't been run yet due to lack of census data on the hourly group).

I have heard there are some transitional rules with regard to years where corporate ownership changes and 410(B). Does anyone have any knowledge of these special rules, or could anyone point me to a reg cite? I have done some research and haven't really found anything useful.

Thanks for your help.

[Guest robin s vatalaro]

Sorry for such a lengthy question, forgot to mention a point of interest - 1/1/98 the hourly employees unionized and a new plan became effective that same date for the union group thus the hourly/union group will no longer pose 410(B) problems. Thanx again.

[Ervin Barham]

There is a transition rule under Code Section 410(B)(6)© and the applicable Treas Reg 1.410(b)that deals with a change in a controlled group under an acquistion/dispostion.