Governmental 457, Entity splitting off

[jsb]

Entity "B" separated from entity "A" about 14 years ago. Employees B continued participating in the 457 plan of entity A for the past 14 years and B is named as a participating entity in A's plan docs. A has also been providing payroll services to B, which facilitated 457 participation. Effective 1/1/16, B is getting its own payroll system, which seems like an opportune time for them to get their own 457 plan as well. B represents about 7% of A's total employee count at present.

I've never faced this type of situation and am hoping for some guidance from the group, either Code based or experiential.

Should B form a new plan starting at "$0" or can B's current employees (and their assets) be split off to form a new plan? If "splitting" out B's participants and assets, dealing with current employees seems pretty straightforward. But what about B's former employees? Do they stay with A's plan, move to B's new plan, or does it matter? (B's current and former employees represent roughly $30M in total assets.)

Looking for info on what's usual and customary ... and legal, of course.

Thanks!

[QDROphile]

Is B eligible and authorized to maintain a governmental 457(b) plan? Apologies if the question seems to be an insult to your analysis, but fundamentals are sometimes overlooked. The question has both a federal law and a state law aspect.

[jsb]

QDROphile, thanks for the quick response. Yes, they are still a governmental entity in their own right, and have been for about 14 years.

[QDROphile]

I am not so sure about past compliance with section 457(b) (1), but that concern suggests that a spin off of the B portion of the plan should include former B employees to emphasize that B was maintaining the plan for its employees.. Also, for feasibility and efficiency of administration, assets are usually good; many service providers have minimum asset requirements or use assets as a factor in determining fees.

No comment about state law, except that state law governs because there is no preemption and government entities are entities of limited powers.