Need help with controlled group questions since the purchase of a company's assets

[katieinny]

Corporation A buys the assets and goodwill of Company B. Company B still exists, but Company A controls it, so a parent/subsidiary controlled group now exists. Company B has a deferral only plan that I think should be terminated. Since a controlled group was created, Company B should be an adopting ER under Company A's Safe Harbor 401(k) plan (by when should they do that?). I understand that there is a transition period for coverage testing, but I'm confusing myself with all the other things that are involved and my brain is going circles. Maybe I'm making it more complicated than it needs to be. For example, when a company's assets are purchased, the EEs of that company can be considered as brand new EEs and not be included in the purchaser's plan until they meet eligibility. So, company B becomes an adopting ER of Company A's plan, but Company B's EEs will not receive a benefit for X number of months (unless Company A decides to be generous and include them immediately). Am I on the right track?

[Lou S.]

If they bought the assets, there is generally no controlled group situation. The owners of B still own B and are responsible for the plan that now probably has few or no active employees.

Company A could grant service with B in their document or treat them all as new hires.

B could terminate Plan and participants of B can take distributions as they please.

OTHO when Company A buys the stock of B, you generally have a controlled group and the employment history of B carries over to A and A becomes responsible for the Plan of B. Plan B can't really be terminated at this point, A would need to be maintained seperately or merged into A Plan. You can take advantage of the transition period provided you meet the requirements.

Hope that helps.

[katieinny]

Lou: Maybe the fact that the 2 principals from Company B are now partners in Company A is messing me up, but I am definitely confused. My brain tells that a controlled group exists, despite that fact that this was an asset purchase. I'm told that Company B still exists and that employees are still getting paid by Company B. But I'm also told that Company A controls Company B. So while I've confirmed that it was an asset sale, it seems to have the characteristics of a stock sale. Company A is trying to figure out what its obligations are to Company B employees. If there is no controlled group, and Company B continues to pay the employees, that would imply that Company A has no obligations to the Company B employees, ever.

[Lou S.]

OK, maybe a controlled group does exist. If so and B still has ees they can probably take advanatge of the transition period if they want. When in doubt refer them to an ERISA attorney to determine potential controled group status.