Loss of controlled group status.

[Guest Bingha]

A controlled group exists with several companies and one company is sold, with original owner (sponsoring the plan) retaining less than 80% ownership. What must the Company that sponsors the plan need to do since the company sold is no longer a member of the controlled group? Also, what about the participants in the plan that worked for the company that was sold? The plan is on a prototype document. Any ideas?

[BeckyMiller]

Lots of issues for you, but you knew that or you would not have posted this.

1. There are some transition rules for coverage testing under Section 410(B) for when a member leaves or joins a group.

2. If the former member stays in the plan, you need to look at the rules for a multiple employer plan. There are different filing requirements for the Form 5500 series at a minimum.

3. You may need to check to see if the former member has or needs to separately adopt this plan, if it is going to play.

4. You say that the owner retained less than 80% ownership. Did the owner retain any ownership? Depending on the form of business, you may still have a controlled group under one of the other affiliation standards.

5. If this is a 401(k) plan, there may be issues about eligibility for distributions.

I am sure there are more issues, but this is a start on the things to investigate.

[Guest Bingha]

Yes this is a 401(k) plan and the current owner will retain a percentage of ownership...currently it is estimated at somewhere in the 70%+ range, but below 80%.