401(k) transfer or termination

[mlp0816]

I have a situation where a corporation "A" (which has a 401(k) PS plan), has been sold to Corporation "B" and Corp "A" will cease to exist as of March 30th, 2009. The employee's of corporation "A" will become employees of Corporation "B" and will be eligible to participate in Corp

"B"'s 401(k) at this same time (March 31st).

My question is - the owners of Corporation "A" wish to terminate the plan and allow the participants to have the option to eiher cashing out their 401(k) balance or rolling it to another qualified plan. My initial thought is that if the employees have a new (alternative) 401(k) that they are eligible to participate in, we should require a plan transfer of assets and not allow a distributable event. Is there a rule in this situation? Thanks in advance!

[A Shot in the Dark]

MLP:

In reading your post, I gather:

The corporations are not part of a controlled group.

The sale of corporation A to corporation B was not really a sale of the corporation via a stock sale, but a sale of assets from entity a to entity b.

Following or coincicent with the asset sale, the employees of corporation A had a legal date of separtion of service. Some or all of those employees had a date of hire with corporation B.

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Following the sale of assets and separation of service of the employees, corporation A now wants to terminate the plan, although a partial plan termination may have occurred with the separaton of service of the employees (depending upon how many were plan participants).

If all written above is a correct assumption, then the participants would be due a distribution from Corporation Plan A. At the Participants election and depending upon the plan provions of Corporate B plan they may choose to rollover their distribution from Corporate Plan A to Corporation Plan B.

What ever decision the Corporate Plan A participants make regarding distribution options, nothing regarding those decisions would prelcude them from particpating in Corporate Plan B pursuant to Corporate Plan B Plan provisons.

If "what I gather" is incorrect then I would need more details.