Controlled Group - Participating employer sold

[Belgarath]

Corps A & B owned 100% by Mr. Big. Mr. Big sells Corp B in a stock sale to Mr. Little. Corp B is now officially not part of the controlled group.

Mr. Little has no interest in any sort of spinoff, etc., and does not want to sponsor a plan.

So, Corp B. has to be removed as a participating employer. 2 questions:

1. Assuming the numbers are over 20%, is this a partial plan termination?

2. Since a stock sale and not an asset sale, is this treated as a severance of employment for purposes of permitting a current distribution?

I believe the answer is yes to both questions, just curious if others agree.

[rcline46]

This should be covered in the plan document. In the Corbel document there is a substantial wirte up.

[Belgarath]

Can you point to where it answers these questions? I'm looking at a Corbel/Sungard/FIS - whatever - VS document. In Article XI, specifically 11.7, I don't see where it addresses any such question. And Article XIV deals with Multiple Employer Plans, which this isn't, unless you take the interpretation that a plan automatically becomes a MEP the moment one of the affiliated employers becomes non-affiliated due to the sale...and I don't think that is a reasonable interpretation.

Thanks.

[rcline46]

Note that a Participating Employer includes an Affiliated Employer. So Article 11.7 tells you what to do. If there is no successor plan, then the Trustee (of this plan) shall retain the assets. Since the participants have not severed employment there is no distributable event. It just sits.

[Belgarath]

Thank you for your input. On my own personal level, I'm reluctant to adopt that interpretation, and I'll explain my logic, or perhaps lack thereof. (And I'm ignoring the potential practical ramifications of attempting to track these employees through (potentially and theoretically) several subsequent sales of the same corporation. Or to perhaps be more accurate, it is because of those practical considerations that I prefer to find a defensible interpretation that says otherwise!)

As to 11.7, it says that in such situation, the assets shall be retained pursuant to the provisions of Article VII, which are basic Trustee responsibilities. If the Plan Administrator determines that there is a distributable event, distributions can be made.

Seems to me that under Notice 2002-4, when combined with 1-401(k)-1(d)(2), there is a reasonable interpretation that in this specific situation there is a severance of employment and therefore distributable event. However, there's most certainly room for disagreement.

Anyone else encountered this situation, and if so, what did you decide?

Thanks again.