Merger or Termination -- Same Control Group

[Guest crzycz]

Hi Everyone:

Company A sells majority of its assets (and moves its employees) to Company B. Company A is owned by the spouse of the Company B's owner. Owner of Company B was once Company A's CEO/owner. Both companies have a 401K plan for its employees.

Can Company A give a termination distribution to the employees that have quit and joined Company B? Or because its in the same control group (assuming constructive ownership between the two owners by marriage), is only a merger possible, without the possibility of a termination distribution (same desk rule)?

Any insight would be deeply appreciated.

[Guest Sieve]

In your case, I believe there can be no distributable event (for purposes of 401(k) deferrals) resulting from either termination of the plan or termination of employment because the sale of assets did not cause movement of A into a new controlled group (i.e., the controlled group is the same both before & after the sale).

For non-deferrals, however, termination of the plan is always a distributable event.

Is that what you're asking?

[Guest crzycz]

HI Sieve:

Thank you for your help. Yes, basically I was wondering whether we can issue termination distributions to the employees that left Company A and moved to Company B.

I think you answered my question, basically that if the employee is moving within the same control group, there is no employment termination constituting an eligible distributable event.

Just one quick question: what do you mean by "non-deferrals"? Sorry if it is obvious, but I am still learning.

In your case, I believe there can be no distributable event (for purposes of 401(k) deferrals) resulting from either termination of the plan or termination of employment because the sale of assets did not cause movement of A into a new controlled group (i.e., the controlled group is the same both before & after the sale).

For non-deferrals, however, termination of the plan is always a distributable event.

Is that what you're asking?

[Guest Sieve]

By non-deferrals, I mean such things as matching contributions and employer discretionary profit sharing contributions. Plan termination, whether or not there is termination of employment and whether or not there is a successor plan, permits distributions to participants of these non-deferrals--it is only 401(k) salary deferrals where plan termination may not result in a distributable event.

[Guest crzycz]

So that means that if/when we do a plan termination, I can distribute the employer match+profit sharing contributions to the employee, but must retain the employee contributions?

By non-deferrals, I mean such things as matching contributions and employer discretionary profit sharing contributions. Plan termination, whether or not there is termination of employment and whether or not there is a successor plan, permits distributions to participants of these non-deferrals--it is only 401(k) salary deferrals where plan termination may not result in a distributable event.

[Guest Sieve]

Yes. And you should merge the deferrals into the new employer's continuing 401(k) plan--or, you could merge all accounts, even if they are non-deferrals, into the remaining plan.

[Guest crzycz]

Thank you so much.

Yeah, I think we'll merge all deferrals and non-deferrals, otherwise it seems like a headache.

Yes. And you should merge the deferrals into the new employer's continuing 401(k) plan--or, you could merge all accounts, even if they are non-deferrals, into the remaining plan.