SH Plan and Asset Sale - how to structure

[cheersmate]

Company A is a professional corporation with a Safe Harbor 401k Plan.

The son of Company A's owner is interested in buying the practice via an asset sale, mid-year, and he would like to acquire the 401kSH Plan with the purchase, as all employees will continue on with the "new company" or successor employer.

It is my understanding the transfer of the Plan should be addressed in the buy / sell agreement, including service to be credited, contributions/deductions for year of purchase.

Questions/Concerns:

With it being a "401k Safe Harbor" plan is there any problem with the new company amending the Plan to reflect the successor Plan Sponsor's Name, EIN mid-year, coincident with the buy/sell? The new company does not intend to "change" any of the Plan's provisions -- simply wants to become the successor plan sponsor.

I am not familiar with any "mid-year" Safe Harbor Notice provisions. Other than providing an SMM to participants, is there any other Notice requirement? My concern here is the SHMatch -- Company A will fund the SHM for all payroll through Company A; the successor Company will fund the SHM for all of its payroll -- is this considered an impermissible change mid-year. They do not anticipate a PS contribution for this year.

Assuming the new company is permitted to Amend the Plan mid-year to reflect its successor sponsorship, Name and EIN (no other changes are intended), is there anything further necessary to affect this transfer of Plan from old sponsor to new sponsor?

Thank you

[Kevin C]

There are no rules in 1.401(k)-3 or 1.401(m) that the plan provisions listing the plan sponsor name and EIN must satisfy. The prohibition on certain mid-year amendments to safe harbor plans is in 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1). For amendments like this, our document provider advises informing clients there is a slight risk of a problem with the IRS. If it makes you feel any better about it, our PPA VS document says changes to the sponsor name, address and EIN can be made without amending the plan.

We did that with a client's plan a few years ago. The sole proprietor dentist died and his wife sold the practice to another dentist. The new dentist kept the staff and adopted the existing plan. The same thing could have been accomplished at a much higher cost by terminating the old plan and adopting a new one with a short initial plan year. It seem ridiculous to force the client to take the expensive route.

[cheersmate]

Thank you Kevin C. All parties feel the same way regarding term one and adopting a new plan...I thought I had read somewhere the IRS basically said to make a good faith effort in cases such as this.

The VS used also says same regarding changes to Name Address and EIN.

Any suggestions wrt the Notice to Participants?

Thank you again.

[cheersmate]

UPDATE: the sale is about to occur. Other than the Successor Employer executing a Resolution Adopting the existing plan coincident with the buy/sell, noting the change in Employer Name and EIN within it (i.e. no amendment), should the Successor Employer sign the last page of the Plan, by adding a signature/date line for "successor employer"...? Also should the current Employer of the Plan (soon to be the predecessor employer) execute a resolution rescinding sponsorship coincident with the buy/sell?

Since it is an asset sale (100%) and the buyer is adopting the plan as successor employer, the 2 employers are considered the same, no severance issues and therefore it would seem a Trustee to Trustee agreement is not necessary. If this is incorrect, please elaborate.

Thank you.