Plan termination - safe harbor match

[Belgarath]

I think I'm right on this, but an accountant is challenging it, and I thought I'd just see what others think.

Corporation A sponsors a 401(k) plan, utilizing the safe harbor match. Calendar year plan. As of some date this month, Corporation A's assets will be purchased by corporation B. The plan will be terminated with a termination date of 9/30/13, and will satisfy the safe harbor requirements through that date, so will qualify as a safe harbor plan.

It seems that this is perfectly acceptable under 1.401(k)-3(e)(4) and 1.401(m)-3(f)(4).

The accountant is asserting that this doesn't qualify as a 410(b)(6)© transaction because 401(b)(6)© doesn't include an asset purchase. I disagree, based upon the regulations. See 1.410(b)-2(f) below. Am I missing something? Seems prettty obvious to me, but I'm always willing to question myself...

(f) Certain acquisitions or dispositions. Section 410(b)(6)© (relating to certain acquisitions or dispositions) provides a special rule whereby a plan may be treated as satisfying section 410(b) for a limited period of time after an acquisition or disposition if it satisfies section 410(b) (without regard to the special rule) immediately before the acquisition or disposition and there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition. For purposes of section 410(b)(6)© and this paragraph (f), the terms “acquisition” and “disposition” refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business.

[Bird]

Maybe I'm missing something, but is(n't) 410(b)(6) a red herring? A and B aren't part of a controlled group are they? I'm not understanding the issue.

[Belgarath]

I guess that's the crux of the question. For these purposes, I don't think they have to be. The 401(k) regulations only require that it be a transaction "described" in 410(b)(6)©.

With the addition of the regulation I cited, I don't think 410(b)(6)© applies only to becoming a controlled group/ASG, or leaving a controlled group/ASG. In an asset sale, no one becomes part of the group or leaves the group because there is no change in stock ownership. If the cited regulation isn't then meant to cover a situation such as I describe, what meaning does it have?

So your corporation has a plan. I buy all of your assets. Your employees all come to work for me. Your corporation still exists, but you have no employees or payroll. I believe you are allowed to terminate your safe-harbor plan with a short year as long as you satisfy the safe harbor requirements through the short year period when I bought you out, because the regulation clearly refers to an "asset" transaction involving a change in employer of the employees of a trade or business.

[Bird]

I think that reg is meant for a situation where a company wants to keep an old plan and its population of participants that it acquires in a purchase transaction separate from its other plan(s). I just don't see a problem whatsoever and see the site as irrelevant.

[Belgarath]

Bird - not to belabor the point, but 1.401(k)-3(e)(4) gives you two options upon plan termination:

(4) Final plan year. A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either—

(i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or

(ii) The plan termination is in connection with a transaction described in section 410(b)(6)© or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d).

Assuming you don't want to revert to ADP/ACP testing, then you are left with (ii). So the determination of whether the plan termination is "in connection with" a 410(b)(6)© transaction is critical. And I think the 410(b) reg I cited previously shows that an asset purchase qualifies as a 410(b)(6)© transaction for these purposes.

Maybe I'm just misunderstanding what you are saying. Anyway, thanks for taking the time to respond.

[Bird]

Sorry, I wasn't reading the cite all that carefully and had it mixed up with the rules for acquisitions. I was chasing my own red herring. But - I agree with you 100%.