Company A assumes sponsorship of plan sponsored by Company B

[Guest Grumpy456]

Company A and Company B are unrelated (not members of a controlled group or affiliated service group). Company B employs 5 people. Company B sponsors a qualified retirement plan and all 5 of its employees are participants in that plan.

On such and such a date, Company A is going to hire all of Company B's employees (not as part of any sort of corporate transaction--no asset sale or stock sale between A and B). However, Company A wants to assume sponsorship of Company B's retirement plan (and Company B is happy to transfer sponsorship of its plan to Company A). Can it do so and, if so, how does it do so? Remember, the two entites do not, either before or after Company A hires Company B's employees, constitute a controlled group or affiliated service group.

[Mike Preston]

Company B is being less than conservative. Why not have the employees roll their money into a plan established by Company B?

[Guest Grumpy456]

Mike, Company B already has a plan--did you mean why not have the Company B employees transfer their accounts into a plan sponsored by Company A? The thing is that Company B doesn't want to continue maintaining a plan and they can't force employees to transfer ("roll") their accounts into a Company A plan UNLESS Company B's plan is merged into Company A's plan (Company A's plan could then be the surviving plan).

My real question, I guess, is whether Company B's board can execute a resolution terminating its sponsorship of the Company B plan (but not termination of the plan) and authorizing Company A to assume sponsorship of the Company B plan absent a plan merger or any sort of corporate transaction (asset or stock) between Company A and B?

[Guest New TPA]

I have a similar situation in that Company A a Ford outlet has closed its doors and wishes to terminate the plan as of 06/30/08. The same owners have started a new business, Company B as of 07/01/08 and would like to start a new plan. My questions is-can they terminate by resolution and get a new plan document but still rollover their old assets to this new plan or would they need to be disbursed. Would this be the same as a merger/acquisition even though Company A is no more. Our Plan is to terminate Plan A by resolution, notify participants of such, draw up a new document, do a black out period notice and transfer old assets to new plan. Is this ok?

[Mike Preston]

Mike, Company B already has a plan--did you mean why not have the Company B employees transfer their accounts into a plan sponsored by Company A? The thing is that Company B doesn't want to continue maintaining a plan and they can't force employees to transfer ("roll") their accounts into a Company A plan UNLESS Company B's plan is merged into Company A's plan (Company A's plan could then be the surviving plan).

My real question, I guess, is whether Company B's board can execute a resolution terminating its sponsorship of the Company B plan (but not termination of the plan) and authorizing Company A to assume sponsorship of the Company B plan absent a plan merger or any sort of corporate transaction (asset or stock) between Company A and B?

Yes, that can be done. And that makes sense. But merging Company B's plan into Company A usually makes no sense from a liability perspective.