Exception to the "same desk" rule?

[Guest]

I represent a service corporation (SC) that sold 100% of its assets to an LLP within the past year. LLP employs all the employees of SC, who now participate in LLP's plan. LLP does not maintain SC's plan in any way, and will not merge it into LLP's plan. SC now wishes to wind down the corporation and terminate its plan.

If both business entities were corporations, I believe we would clearly have a

410(k)(10)(A)exception to the "same desk" rule and distributions from SC's plan would be permitted. Am I correct in this assumption?

However, based on several letter rulings (See PLR 9102044 and PLR 9848008) both the selling and purchasing business entities must be corporations.

Is SC destined to maintain a wasting trust? Must it maintain its corporate charter until 150 participant have a "separation from service"? Is this good public policy. Does anyone have any ideas? I've considered terminating the plan and filing the 5310 with full disclosure and see what happens. HELP!

[Alf]

SC should be able to terminate the plan and distribute all of the accounts under the Section 401(k)(10)(A)(i) rule allowing distributions on termination of a plan. All of the Section 401(k)(2)(B)(i) distribution rules are independent of each other so, if you otherwise qualify for one of them, distributions can be made without respect to the same desk rule.

[Guest mark1]

My company sold 62% of the bussiness unit in which I work. After six months of not being able to participate in the 401k plan and not being able to transfer any of the money already in the existing 401k, the new company is telling us that the same desk rule is in effect and that we MUST transfer all the existing money to the new companies 401k plan . This new plan was just started. Both companies are telling us that they are going to cancel our 401k funds from the parent company and put the money into an account until "validation" then the money will be transferred to the new 401k plan. Many of us don't what the money transferred for various reasons. Some of us didn't even open a new 401k with the new company. Can they transfer our money out of the original 401k funds into another account then move the money into the new 401k against our wishes?

[Guest]

Alf,

Under the plan termination rule, do I have a successor plan problem since SC did not terminate prior to the asset sale? Since the shareholders in SC are now partners in LLC, is this a controlled group after the asset sale? Thanks

[Guest]

Alf,

My further research indicates that you are correct - SC can terminate the plan and distribute account balances since the plan of LLP is not considered a successor plan. The shareholders of SC own only 18% of LLP. (See GMC 39824) Anyone disagree?