Change in plan sponsor

[MoShawn]

XYZ Co maintains a 401(k) plan covering all of its employees. Ownership is X=14%, Y=14% and Z=14% (the other 58% is owned by outside entities).

During 2010, two new companies are formed:

XY Co is owned 50% by X and 50% by Y.

Z Co is owned 100% by Z.

XYZ Co remains in existance to collect old receipts, after the completion of which it will presumably be shut down.

Z Co maintains its own 401(k) plan. XY Co employees are currently not covered under any plan. They are not a controlled group, and we do not believe an affiliated service group, since no "work" is being done by XYZ Co, just collection of outstanding receipts.

1. Can XYZ Co 401(k) Plan simply be amended to make XY Co the new plan sponsor?

2. Do we need to terminate the plan and begin a new one? Begin a new plan and merge?

3. Other suggestions I may be overlooking?

[Bird]

When you say Z "maintains" a plan, do you mean it started a new one after the company split? Maybe it doesn't matter.

We would typically have XY adopt the old XYZ plan as the new plan sponsor. You might want to have XYZ be an adopting employer for a while if there might be additional contributions coming from that company. We would typically have some kind of resolution from XYZ permitting the change in sponsorship.

If XY has reason to be concerned about the existing plan, then you might want to terminate it and have XY start a new plan. Otherwise as described above.

You might also consider doing a spin-off of assets for the Z employees to that plan.

[MoShawn]

Yes, Z started up its own plan after the split. They are not really the concern, since they are a separate employer.

Thanks for the feedback.

[GMK]

We would typically have some kind of resolution from XYZ permitting the change in sponsorship.

This point, which was also mentioned in a previous thread, is worth highlighting for anyone who missed it.

[david rigby]

3. Other suggestions I may be overlooking?

Have entire proposal reviewed by ERISA counsel first. If anything "taints" the XYZ plan, then XY may not want to become an adopting employer.