How is a 401(k) plan affected by a "stock split purchase" of the sponsoring company?

[Guest Cinadr]

I work for a TPA firm who administers a 401(k) Plan whose sponsor was sold September 20, 2013, the terms of which are unknown to us. During the process, the plan trustee elected to terminate the plan. Plan termination became effective October 1, 2013. Plan participants were paid out, with most of them receiving cash distributions.

We are now being contacted by the purchasing company's TPA, They are stating that the purchase involved a stock split and that the plan should not have been terminated. They are requesting information about participant distributions and stating that the plan may need to be "made whole."

The only information I can find concerning a stock split describes company stock and has nothing to do with assets in a 401(k) plan. The 401(k) plan contains no company stock.

I would appreciate any insight anyone can offer.

[david rigby]

I work for a TPA firm who administers a 401(k) Plan whose sponsor was sold September 20, 2013, the terms of which are unknown to us. During the process, the plan trustee elected to terminate the plan. Plan termination became effective October 1, 2013. Plan participants were paid out, with most of them receiving cash distributions.

We are now being contacted by the purchasing company's TPA, They are stating that the purchase involved a stock split and that the plan should not have been terminated. They are requesting information about participant distributions and stating that the plan may need to be "made whole."

The only information I can find concerning a stock split describes company stock and has nothing to do with assets in a 401(k) plan. The 401(k) plan contains no company stock.

The trustee elected to terminate the plan? Unless the trustee is also the sponsor, this will be a problem.

Get legal advice.

[QDROphile]

If the plan assets have been distributed, your job is over. Whether or not your are engaged to do something else is up to you, keeping in mind that if you are re-engaged, it should be by the same plan administrator that hired you in the first place. You probabaly have confidentiality responsibilities with respect to the plan. The plan sponsor seems dumb enough that it probably was the plan administrator. If the plan sponsor's identity has become confused because of the transaction, the person who wants to engage you should be the one to explain and convince you who the successor plan administrator is as a result of the transaction This is not a very good place to get a lesson in corporate law. You may need to pay for some education to ensure that you are engaging with the appropriate party relating to the plan.

[BG5150]

If the plan assets have been distributed, your job is over.

Except for maybe the final 5500 and/or 1099's.

[K2retire]

I work for a TPA firm who administers a 401(k) Plan whose sponsor was sold September 20, 2013, the terms of which are unknown to us. During the process, the plan trustee elected to terminate the plan. Plan termination became effective October 1, 2013. Plan participants were paid out, with most of them receiving cash distributions.

We are now being contacted by the purchasing company's TPA, They are stating that the purchase involved a stock split and that the plan should not have been terminated. They are requesting information about participant distributions and stating that the plan may need to be "made whole."

The only information I can find concerning a stock split describes company stock and has nothing to do with assets in a 401(k) plan. The 401(k) plan contains no company stock.

I would appreciate any insight anyone can offer.

Someone is using inaccurate terminology. Generally a stock split is when my 100 shares of ABC Company are turned into 200 shares of ABC Company -- nothing related to a separate company.

As for the TPA's concern, it is likely due to the successor plan rules indicating that the participants did not have a distributable event that would allow them to be paid out of the terminated plan. Whether or not that is correct would depend on the nature of the transaction between the two companies and timing of the plan termination relative to that transaction date.

It sounds like the attorneys structuring this deal may have dropped the ball. I'd let them figure out how to fix it.

[QDROphile]

Exactly. It is not the TPA's concern that the plan was terminated and liquidated as long as the TPA followed the instructions of the plan administrator unless the TPA undertook responsibilities for comnpliance and planning that would have been unwise to undertake.

[masteff]

Ditto to the above, especially what K2retire said about the client's attys figuring it out. Since you're not privy to the transaction details, you can't begin to say what is or isn't proper. And what QDROphile said about confidentiality... this is not an open and shut transfer of records to a successor TPA.

[PensionPro]

"They are stating that the purchase involved a stock split and that the plan should not have been terminated."

Are they stating there is a legal restriction or that it was an imprudent decision to terminate the plan?