Participating Employer Sold

[coleboy]

A participating employer under a 401k plan is sold. How does that affect the employees in that participating? They haven't terminated their employment nor has the plan that they were under terminated. Can they set up a new plan of their own if the new employer doesn't want to merge them into their own plan? If so, are the assets just moved over into the new plan?

Thank you.

[jpod]

Three questions. First, is the plan a "single employer plan" in which two or more controlled group members or affiliated service group members participated, or is the plan a multiple employer plan?

Second, tell us exactly what you mean when you say the employer was "sold." Were the ownership interests in the employer sold to a unrelated new owner or owners, was the employer merged into another unrelated entity, or were the assets of the employer sold to an unrelated buyer?

Third, what did the acquisition agreement say about the 401k plan going forward, if it said anything at all?

[MoJo]

There are a lot of (potentially) significant issues in a scenario such as this - and unfortunately THEY SHOULD HAVE BEEN ADDRESSED PRIOR TO THE SALE.

Ok, I'll get off my soapbox now (I'm a "recovering" ERISA attorney and sometimes the "beast" resurfaces).

The sold employer CAN (and should) have it's own plan. That can be accomplished in a couple of ways. I usually recommend a "spin off" of the portion the original plan that contained benefits for the sold employees into a plan maintained by the sold employer. Not having been involve PRIOR to the sale may cause problems to exist - including, has the structure of the sale resulted in a distributeable event to the those participants? Will the plan sponsor cooperate? What has been communicated to the employees? Does a spin off change the demographics of the existing plan such that there are pricing considerations for the recordkeeper? Are salary deferrals continuing for "sold" employees and if so, where are they going, and who is responsible (as a fiduciary) for those contributions/balance? There are many other issues too numerous for a post here at BenefitsLink.com

If the sold employer starts a "new" plan without capturing the assets from the old plan, that too has pricing implication for the sold employers plan (startups are expensive to recordkeeper/employer/employees - until sufficient assets exist to support the plan (based on the business model of the service providers).

Bottom line is: The plan sponsor(s) need to consult with competent counsel to discuss and evaluate the (remaining) options....

[coleboy]

I am trying to find out more details. Unfortunately I'm not getting much cooperation. I learned that the new company has no immediate plans to move the company that they bought into their plan. Hence, at least for 2015, the "bought" company will have to have their own plan. The question now becomes whether the participants account balances just get moved into the new plan or do they participants get to choose to rollover their money elsewhere.

It's frustrating as I only get bits and pieces of info. The former company was part of a control group. I will tell them that they should consult an ERISA attorney as I don;t want something to come back at me..