Successor Plan Issue

[Guest matt2800]

Company A purchases the stock of company B on April 1, 2008. Company A has 401(k) Plan with 2% match and company B has safe harbor 401(k) Plan utilizing basic match contribution. Attorneys decide they do not want to terminate company B Plan prior to April 1, 2008. Plan is to liquidate company B in the next few months. Company B has six employees of which 4 will be terminated upon liquidation and 2 will be hired by company A. Obviously not terminating the Plan prior to April 1, 2008 has made this a headache.

With regard to company B Plan: Both documents have the 410(b)(6)© language so operating separately until liquidation is not a problem. I want to terminate company B's Plan. Upon liquidation the 4 employees will have a severance from employment so I don't see a problem with paying them out. The 2 other employees (who were the owners of company B prior to the acquisition) will not have a severance from employment and distribution of their account would cause Company A's plan to be successor plan if they are allowed to participate within 12 months after final distribution from Company B's Plan. Would terminating the Plan and providing for an elective transfer for the 2 employees from company B's Plan to Company A's Plan be a means around the successor Plan issue?

The safe harbor contribution would have to be made up to the date of liquidation and I was thinking that I would not have to revert to ADP/ACP testing since the termination of the Plan was due to liquidation of the sponsor. The fact that a parent sub controlled group exists on the date of liquidation make me unsure though.

Any thoughts and other issues that should be addressed would be appreciated.

[JanetM]

Keep it simple. Company B plan - pay out 4 terminated participants (if they elect to withdraw). 2 others who go to Company A and begin participating in Company A plan. At convenient time after all that, merge the assets from Plan B into Plan A.