Asset sale plan merger

[R. Butler]

Co. A purchases Co. B. in asset purchase. Both Co. A and Co. B have retirement plans.

The intent was to merge the plans, but Co. A didn't formally adopt the plan at the purchase date. Co. A did prepare a resolution to merge the plan about 30 days after the pruchase. Co. B continued to accept contributions beyond the asset purchase date.

Co. B's advisors are telling them that since the plan wasn't adopted simultneous with the buy/sell transaction that the plan terminated & can't be merged.

Although ideally the plan should have been adopted at the transaction date my concern is that since contributions were accepted after the transaction date if Co. B's plan is allowed to terminate and distributions are made. we have successor plan issue if Co. B's former employee's are allowed to particiapte in Co. A's plan.

[Bird]

Were company B's (former?) employees being paid by A or B when their contributions were withheld?

Clearly, the plan of Co. B wasn't terminated unless someone took action to terminate it, so we need to cast a skeptical eye on anything Co. B's advisers say.

I'm not sure how Co. A can adopt a resolution saying the plans are merged "about" 30 days after the asset sale.

It's kind of hard to determine exactly what's going on and where the money went, so I'm not sure if there is a problem or not.

[R. Butler]

The employees were being paid by Co. A immediately after the purchase.

Co. A's intent is to merge the plans at 01/01415. They adopted the resolution stating that intent was adopted about 30 days after the purchase.

[david rigby]

Terminology can be very important. If A bought the assets of B, then company B was not sold and still exists, and B remains the sponsor of its own plan. (If B no longer existed, then B's plan might automatically be terminated; check the plan document.)

A and B probably need to revisit the question of "plan merger" with its own legal counsel, separately.

[Bird]

So how did Co. B "accept contributions" if it was not paying any employees? You mean Co. A withheld and submitted to Co. B's plan?

The issue of plan merger is tangential to the issue of who is withholding and submitting contributions, and to where. Co. B still exists, as noted, and can adopt a resolution to merge its plan into A's plan whenever it wants, of course Co. A will need to have a similar resolution, which it may already have.

It shouldn't be all that difficult but the facts are still rather muddled.

[R. Butler]

Terminology can be very important. If A bought the assets of B, then company B was not sold and still exists, and B remains the sponsor of its own plan. (If B no longer existed, then B's plan might automatically be terminated; check the plan document.)

A and B probably need to revisit the question of "plan merger" with its own legal counsel, separately.

I understand what you are saying. I guess I am trying to determine if there will be a successor plan issue assuming the following:

• After the asset purchase employees were paid by Co. A. (Actually still trying to determine that; Bird brought up a valid point that employees may have still been paid through Co. B)
• Contributions were withheld from employee paychecks and put into Co. B's plan after the asset purchase.
• Co. B terminates the plan & distributes asssets
• Co. A allows participants in Co. B's plan to immediately come into Co. A's plan.

My inclination, given the above assumptions, is that since Co. A let the employees participate, after the acquisition, Co. A has to adopt that plan. How else can you rectify that? If Co. A has to adopt Co. B's plan, the plan can't then be terminated and ahave assets distributed and then immediately allow the same participants to participate in Co. A's plan.

Am I missing something in the analysis?

Thnaks for any guidance.

[WCC]

The answer to the first question comes from the EOB:

5.a. Successor plan defined. A successor plan is any alternative defined contribution plan, other than an ESOP, that exists at any time during the period beginning on the date of the 401(k) plan's termination and ending 12 months after distribution of all the 401(k) plan's assets. See Treas. Reg. §1.401(k)-1(d)(4). The plan is not a successor plan unless it is maintained by the same employer that maintained the terminated 401(k) plan.

"How else do you rectify it?" possibly an amendment to credit predecessor service with Co. B (for eligibility). However, I am not sure about the timing of a retroactive amendment if the employees of Co. B are already participating. Company B then does what it wants with their plan (i.e. termination or continuation), Co. B participants have a distributable event due to termination of employment with Co B. Assuming the sponsors are not related; therefore, no successor plan issues.

Bullet point #2 is interesting I won't speak to that point because I am not sure how deferrals from pay with Co A go into Co B's plan.

[Bird]

Still confused about what happened, but I'll tell you what I would have done:

Since Co. A effectively acquired the employees of Co. B and apparently wanted them to participate in Co. A's plan, adopt an amendment to Co. A plan that allows them to participate immediately, either by saying that directly or crediting service with Co. B.

Co. B either terminates their plan, and participants can do what they want with that money, or the B plan is merged into the A plan. There are issues with merging plans, like maintaining benefits, that may make that unattractive.

[BW]

This reply assumes that B was purchased in its entirety and no portion continues to exist as an ongoing concern.

All the regulations I can recall deal with when assets CAN be distributed. If no action to terminate the plan was taken prior to the transaction the safe course would be to merge the plans (which seems the intent). The resolution could be a little problematic but should be something a good ERISA attorney could overcome.

Most plans have a transitional relief built into the document to allow for the plans to run concurrent prior to merger at a later date. You'll have to deal with protected benefits and I agree with Bird's comment regarding plan B's advisor. B's plan could also be frozen prior to merger.

I'm not an attorney but every one I've worked with has taken the approach that if no action to terminate the plan prior to or concurrent with the transaction there's little room after the fact.

If some part of B continues to exist outside the purchase then based on what you've described things get messy.