Participating employer situation

[Belgarath]

Here's a lulu.

Corporation A restated their Plan last January 2015. Included a Participation Agreement for Corporation B, part of a controlled group.

Corporation A sold Corporation B last July. (at this point, I believe a stock sale rather than an asset sale) Didn’t tell us. We therefore did not have the plan/participation agreement changed.

One Corporation B employee signed up for the Plan in December. They have had $7500+ withheld from their pay. This was also unknown as the contributions have not been remitted to the fund/platform because Corporation B now uses a different payroll company than Corporation A, and they don’t know how to get the funds from Corporation B checking account to current funding company. Apparently. This is third-hand...

We have also been informed that since Corporation B was sold, Corporation A does not want any of Corporation B's employees participating in the Plan.

Best way to correct? Obviously get the participating employer agreement removed, but I don't see how they can just refund the money and issue a corrected W-2. Seems like this employee's funds will have to remain in the plan. I don't see a "distributable event" here, so money can't simply be rolled out, unless Corporation B establishes a plan of their own?

Maybe there's an easy solution I'm missing.

[K2retire]

In similar situations we've taken the position that once Corporation B is no longer a participating employer, all of their employees are considered terminated from the plan. (or at least from the plan sponsor)

[Belgarath]

Thanks. So you would simply have it considered an eligible rollover distribution, and allow participant to choose to take in cash or roll to an IRA? Or, would you consider it an ineligible contribution from someone ineligible to participate, and have it refunded and a corrected W-2 produced?

Makes me squeamish, but I appreciate any thoughts you may have. At this point, I'm not even sure what the "squeaky clean" correction would be - haven't thought it through yet.

Seems odd that I've never seen/heard of this situation that I recall.

[rcline46]

There should be a section in the plan document covering participating employers. Start there for what can and cannot be done.

[Belgarath]

Yeah, I did that first before posting. Doesn't help much.

Thankfully, after getting updated information, the original information wasn't quite correct, and it turns out this isn't our problem. Long story not worth repeating. But, I'd still be interested in whatever thoughts anyone has on the original question!