Is this a successor plan for 401(k) safe harbor purposes?

[M R Bernardin]

Employers A, B and C are participating employers in a 401(k) plan maintained by Parent D. Parent D sells the stock of A, B and C to unrelated company E. Company E has been formed for the purposes of purchasing A, B and C and has never sponsored a 401(k) plan. Employers A, B and C will be participating employers in the new Company E 401(k) plan, which will be effective July 1, 2000, and Company E would like to adopt a safe harbor formula. Eventually, the assets in the Parent D plan attributable to employees of A, B and C will be transferred to the Company E plan. The initial plan year will be only 6 months long. It appears this would be okay so long as Company E's plan is not a successor plan. Successor plan is defined in Notice 98-1 as a plan where 50% or more of the eligible employees for the first plan year were eligible employees under another section 401(k) plan maintained by the employer in the prior year. I believe that since Company E is unrelated to Parent D, that it is not the same employer as Parent D and that its plan is not a successor plan to the Parent D plan. I would like to hear any thoughts you might have to the contrary.

[Guest JWBrown]

Sounds reasonable to me. Company D sold assets to Company E and did not take on any responsibility or liability for the Company D plan in the transaction. Company E then starts its own plan. Doesn't sound like a successor plan issue to me, as long as Employers A, B, and C terminated their status as participating employers in the Company D plan prior to the sale.

If they continued as participating employers, then Company E might be deemed a participating employer through its ownership of A, B, and/or C, which would make the new plan a successor plan.

[Guest svatty]

This would be perfectly acceptable. The "successor employer" issue is determined by looking at the control group of the parties at the time of the transfer / termination etc... The new employer would not be a member of such control group and thus not be determined to be a successor employer.