Plan status after acquisition?

[Guest KRS401k]

We are TPA for Company D and this the scenario:

Company D was acquired by company E and is now considered a legal entity of E.

D had a 401(k) plan before being aquired.

After the merger, participants of D's plan make contributions to E's plan.

D is currently operating as D, Inc. a division of E, Inc. sending out invoices and paying vendors and paying employees as D.

The merger happened almost a year ago and participant's are wondering if they can take their money out of D's plan. Are there general rules regarding this, or would something be stated in E's document? E has not contacted us regarding D's plan.

We have not had to deal with anything like this in the past. Any thoughts would be appreciated.

[QDROphile]

What is D telling you about D's plan? Or to be more accurate, what is the fiduciary of D's plan telling you about D's plan? It sounds like D's plan is frozen. It will operate normally except it will have no contributions. Participants have the ability to get distributions as usual, e.g. termination of employment, but no special rights except maybe accounts became vested. I am a bit shocked by your question.

[K2retire]

QDROphile, what about that picky little rule that says a profit sharing plan must have substantial and recurring contributions? I've always been told that a "frozen" 401(k) plan could not exist for that reason.

[Guest KRS401k]

I am a bit shocked by your question.

In what sense?

[QDROphile]

K2retire: Just off-hand I would offer that it is implied by (i) the rules for vesting upon complete cessation of contributions, which do not say that the plan terminates, and (ii) Treas. Reg. section 1.411(d)(11)(e). You raise a good point and implications are not a great foundation. In any event, it would be some time, almost certainly more than one year, before the rule would have effect. I have heard different rules of thumb.

KRS401(k): I am shocked that a TPA would wait so long to ask for an explanation from the plan sponsor or fiduciary about what happened to contributions and the implications. I can understand coming to the message boards to get comments about the explanation of the phenomena and any compliance aspects of the circumstances and the proposals for maintenance or disposition of the plan. Curiosity is good, but it is strange to come to the message boards with both curiosity and complete speculation when some of the curiosity should have played out with prior inquiry.

One answer that fits is that the plan has a determination letter request pending and a plan liquidation or merger has been put off until receipt. But if you don't ask ... .

[david rigby]

Is anyone discussing the possible merger of plan D into plan E?

Not an exhaustive list:

Possible advantage: more efficient plan administration.

Possible disadvantage: would a plan merger push the participant count over the threshold for audit?

[masteff]

First off, the same desk rule (even as it was revised by EGTRRA) prevents D's employees from taking money out of Plan D. D employees never had a separation from service.

QDROphile, what about that picky little rule that says a profit sharing plan must have substantial and recurring contributions? I've always been told that a "frozen" 401(k) plan could not exist for that reason.

A "frozen" plan absolutely CAN exist. At my previous job, we had two of them resulting from corporate acquisitions; they passed full IRS and DOL audits. As QDRO's last post notes, you have vesting and a few other issues that should be dealt w/ via plan amendment(s) at the time of the M&A.

[QDROphile]

Wow, a lot of activity while I was editing to provide a direct response to KRS401(k).

[Guest Laurel]

KRS401(k): I am shocked that a TPA would wait so long to ask for an explanation from the plan sponsor or fiduciary about what happened to contributions and the implications. I can understand coming to the message boards to get comments about the explanation of the phenomena and any compliance aspects of the circumstances and the proposals for maintenance or disposition of the plan. Curiosity is good, but it is strange to come to the message boards with both curiosity and complete speculation when some of the curiosity should have played out with prior inquiry.

One answer that fits is that the plan has a determination letter request pending and a plan liquidation or merger has been put off until receipt. But if you don't ask ... .

Having dealt with employers/sponsors exhibiting varying degrees of conscientiousness in my career, (and having seen that in acquisition situations the benefits are generally an afterthought), I am not so quick to attribute blame to KRS401(k) or his/her firm. Kudos for caring enough to come forward with the question.

[QDROphile]

There are so many elements of plan administration that are affected because of circumstances signaled by absence of contributions that it is hard to imagine a TPA not asking about the signal as part of handling administration properly. Maybe scope of the TPA's duties were very limited.

[K2retire]

Or maybe it's an annually valued balance forward plan where the TPA doesn't see the investment statements until significantly after the fact.