Asset Sale and Non-discrim issues

[Dennis Povloski]

Company sells all of its assets including employees effective 9/30/2010. Owner continues to maintain the business entity, and would like to set up a defined benefit plan to help offset some of the income derived from the assets sale.

My thought was that we set up the new plan effective 10/1/2010 with a short plan year running 10/1/2010 to 12/31/2010. The idea being that the employees termination date was 9/30/2010 (the date of the asset sale), and they would not be covered under the new DB plan.

I now find out that they have an existing 401(k) Profit Sharing Plan. Since the 401(k) plan runs on the calendar year, does that mean I have to consider both plans for Non-discrim, coverage, top heavy, etc? They technically don't have the same plan year, since the DB will have a short plan year. But will I have to employees for the whole year in my DB plan because they were covered under the 401(k) PSP?

I'm not sure what's happening to the 401k as a result of the sale.

Any thoughts to point me in the right direction are greatly appreciated!

Thanks!

[Mike Preston]

I think the whole idea is a non-starter. Check out the "discriminatory timing of amendments" rules in 401(a)(4).