409A Same Desk Rule

[Jeff Kirtner]

Section 1.409A-1(h)(4) contains a 409A "same desk rule" under which, in an asset sale, buyer and seller can agree that the asset sale does not result in a separation from service for participants in the NQDCP of seller. However, the regs say nothing about how to implement the same desk rule. Would the buyer adopt a plan that essentially mirrors the seller's plan (except for the definition of "employer," which would now refer to buyer rather than seller), with a transfer of assets, liabilities and participation to the buyer's mirror plan? Or would the employees remain participants in the seller's plan, with separation from service from buyer serving as the payment event from seller's plan. In that case, it's not clear how the seller's plan can authorize payment upon separation from service from an unrelated employer. In short, I'm not sure how to implement the 409A same desk rule, and any ideas would be appreciated.

[Guest basilb]

Section 1.409A-1(h)(4) contains a 409A "same desk rule" under which, in an asset sale, buyer and seller can agree that the asset sale does not result in a separation from service for participants in the NQDCP of seller. However, the regs say nothing about how to implement the same desk rule. Would the buyer adopt a plan that essentially mirrors the seller's plan (except for the definition of "employer," which would now refer to buyer rather than seller), with a transfer of assets, liabilities and participation to the buyer's mirror plan? Or would the employees remain participants in the seller's plan, with separation from service from buyer serving as the payment event from seller's plan. In that case, it's not clear how the seller's plan can authorize payment upon separation from service from an unrelated employer. In short, I'm not sure how to implement the 409A same desk rule, and any ideas would be appreciated.

I haven't seen this come up yet. I'd say that in a sale of substantially all assets, buyer would assume and seller would assign the plan and transfer rights and obligations, with a purchase price reduction. In a sale of a division or some such where seller's plan remains ongoing at parent level, I think your only option would be to have a mirror plan adopted by buyer (I guess it makes sense that seller and buyer would still go through the exercise of executing an assumption/assignment document to avoid potential duplication of benefits.) Otherwise, the provision wouldn't really work for some kinds of arrangements, e.g., salary deferral plans, and practically it really doesn't make sense to say that seller has to somehow keep up with the employment status of its former employees at the newco.