Asset Purchase

[Guest A_Dude]

This seems like a dumb question, but I can't seem to locate the answer clearly anywhere. The buyer purchases a company (Asset Puchase) and subsequently adopts the sellers 401(k) plan. The buyer has a PS plan, but no 401(k). Do the transition rules apply for the 401(k) (i.e. can it proceed with covering only the "new" (seller's) employees for the rest of the plan year? And, then bring in the buyer's "old" employees at the end of the transition period?

[Guest A_Dude]

Any help?.....

[MWeddell]

The 410(b)(6)© merger & acquisition transition period ends on the earlier of the last day of the first full plan year beginning after the date the transaction closed or when there is a significant change in the plan or the coverage of the plan.

If the buyer's workforce becomes eligible for the 401(k) plan that previously covered just the seller's workforce, then the transition period will end. That doesn't sound like a big deal because the 401(k) plan now covers all employees in the controlled group and hence will satisfy 410(b) coverage testing without the m&a transition period rule. So unless there are other employees in the controlled group that you haven't mentioned, there's not a problem here.

[Guest A_Dude]

The merger was last year, but the buyers "old" employees were not allowed to enter until February this year. The buyer "adopted" the plan but only let the employees they acquired from the seller continue to contribute. Doesn't that forfeit that transition period, since they should of had to allow their employees who would of met sevice and entry requirements to enter the plan (which they did not). Let's assume they exluded everyone when adopting last year that was not an employee of seller. Is this considered significant change/ coverage change? Testing coverage yes it would..., participation wise no...

[MWeddell]

I would say that the transition period ended February 2014. I would characterize last year's actions as "no significant change in the plan or in the coverage of the plan other than the acquisition" (which may include a stock acquisition). There was a significant change in the employer but not in the plan or the plan's coverage.

[austin3515]

It might be moot though if there is a single legal entity employing everyone. Unless the seller's plan was amended coincident with the transaction to exclude the buyer's employees then those employees would be eligible if they had met the eligibility requirements. This has nothing to do with 410b6c. Some plans will exclude employees acquired through a 410b6c transaction, but the employees being excluded would not be covered by this exclusion (i.e, because they are not the "acquired employees.").

I am also troubled by the fact that the plan was adopted after the acquisition. Upon the acquisition, the sellers employees all have a distributable event because they had a severance from employment. We therefore always word these things that the transfer of sponsorship is coincident with the acquisition (assuming of course we knew before hand ). I have no idea what this means from a compliance perspective but it sounds problematic.

[Guest A_Dude]

Well I'm glad you agree because the amendment seemed "pretty significant to me," and made me a little uneasy. But, the buyer's intentions and the amendment were needed to make it work and overall favorable at least to the seller's former employees. All the sources on the issue really only talk about the buyer either merging plans, terminating the plan, or the buyer's plan choices. There is nothing about the buyer adopting the seller's plan in an asset purchase and appying the transition rules...