Plan Termination Question

[austin3515]

Company Big buys the stock of Company Small, closing date of 7/15/2015. Company Small will resolve to terminate the plan on 7/14/15 and will then proceed to pay everyone out. We are being told that at some point, the non-respondents can be transferred to Company Big's 401k plan, essentially in place of the force out IRA's.

to me, this seems ridiculous, because really what happened is we allowed all of these active employees to close out heir accounts (before age 59.5), with the pre-existing knowledge that the plan was in fact going to be merged into the parent company's plan. In other words, the original plan was to merge the two together with the added step of first paying out everyone who otherwise would be ineligible for a distribution in the event of a merger (i.e., due to the 12 month rule relating to terminated 401k's).

Am I missing something?

[Lou S.]

I don't know if it is technically allowable but I also doubt that either the IRS or DOL would have a problem transferring missing participants to Company Big's plan where Company Big is clearly assuming some fiduciary liability for the accepted assets and you are transferring from one tax differed account to another which as I understand it was the whole concept behind the forced IRA cash outs.

[QDROphile]

Which part is ridculous? My vote goes to this: "the original plan was to merge the two together with the added step of first paying out everyone who otherwise would be ineligible for a distribution in the event of a merger"

[austin3515]

Are the waters not sufficiently muddied, and the stakes so incredibly high (i.e., ineligibility of ALL rollovers) to make it tantamount to insanity to do this?

[Lou S.]

I think you are making a mountain out of a mole hill - to me it is more like "we've decided to roll missing participants to the the benevolent* Company Big Plan" instead of sending them off to "uncaring* missing IRA institution".

6 of one half a dozen of the other in my eyes.

*the asterik words added for effect.

[david rigby]

Isn't it a merger or a termination? Not both?

[mbozek]

I may be old school but my understanding is that in order to terminate a plan, benefits of all participants must be distributed to them. period. Benefits of missing participants can be forefited under IRS regs, rolled over to an IRA or send to a state abandoned property fund. Participants assets can only be transferred to a qualified plan if there is a merger.

Problem I have is if some participants assets are involuntary transferred to new plan will IRS say transferor plan was never terminated.

[Bird]

I wouldn't do it. As noted, it's either a merger or a termination. And why would anyone want to keep those lost accounts hanging around, when you have blessing to get rid of them by forced IRA rollovers?