Terminating Plan

[PFranckowiak]

I have a Safe Harbor Match Plan. The ER is terminating all the employees. The employees will then become employees of another company that the owner has no ownership in. The owner will remain as a consultant/broker and will not be an employee of the larger company.

1. Since the employees are being terminated is there any notice required?

2. Plan will fail testing if it terminated now - can they keep the plan in place through the end of the year with the owner being the only employee and getting the SH match to year end and then terminate the Plan.

3. Employees will be doing the same job that they were = but will be filling out applications and will become employees of this larger company. The preious owner will be providing space for the employees. I do believe that the larger company does offer a plan.

Anything I am missing here?

Plan is updated for EGTRRA and PPA.

Thanks

Pat

[A Shot in the Dark]

Pat:

With the separation of service of all of the employees, then presumably all of the plan participants had a separation of service. The plan probably incurred a partial plan termination.

Was there a purchae of assets or a business sale between the two entities?

[david rigby]

The plan probably incurred a partial plan termination.

This is a vesting issue.

BTW, this looks like a sale of assets. Is there a written agreement between buyer and seller that spells out expectations w/r/t the qualified plan?

[PFranckowiak]

No sale of assets. Owner will be getting commission from the continued clients. Owner will not be Employee of new company, but will be maintaining the same office etc. From my understanding the employees will be employees of the new company and the customers will be billed by the larger company with the owner getting paid like a broker based on the amount billed. I don't think there is any intention of takiing over the plan or a merger etc. All employees are already 100% vested as it's a Safe Harbor only plan.

Thx

P

[austin3515]

Check out the final 401k regs on terminating safe harbor plans. There is an exception to the 12 month plan year rule for changes in controlled groups. The safe harbor should be fine since the only reason for the short plan year was the acquisition.

[PFranckowiak]

Since the owner will still be employed, there might be an advantage to keep the plan in place until year end, to allow him to defer for the entire year. All the other employees will be terminating. Is this a possibility or am I missing something.

Thanks for your input

P