Business dissolving

[Belgarath]

What would you say is the "best" and "easiest" way to accomplish this:

Corporation "A" with two owners is dissolving, possibly with some bad blood involved. They will each form new corporations. They will essentially each take half of the existing employees. Each wants a plan.

1. Would you just terminate the existing plan and establish a new plan for each employer?

2. Would you have one employer assume the assets and liabilities of the plan previously sponsored by corporation "A" and just have one of the new employers set up a new plan?

3. Other?

I don't know that it ultimately makes a lot of difference, but somewhat cheaper administratively not to go the route of #1. However, I don't know if either employer would be willing to assume the assets and liabilities of the plan currently sponsored by "A" or not. Let's also assume no controlled group or affiliated service group will exist, so shouldn't be any "successor plan" problems, since new employers won't be the same or related employers.

[Lou S.]

What do they want to do?

If bad blood, terminating and starting fresh, probably granting service with old company in both new plans is probably the cleanest way to go.

[Belgarath]

Thanks Lou. Have no idea yet what they "want" to do - just sort of considering possible options in advance. However, my best guess is that neither will want to assume any liabilities of existing plan - although if cheaper, maybe they will fight over who would get to do it!

[MoJo]

While what Lou suggests *may* be the cleanest, keep in mind that 1) upon termination, there will be a run off of assets, and 2) the "start-up" plans will be less attractive to service providers, possibly limiting choice of service providers and increasing costs.

I always suggest spinning off each half to separate plans assumed by the new entities (unless, of course, there are "issues" that would carry over).

[Lou S.]

Spinoff is another way to go.

Of course if there is bad blood and some terminated employee with balances you can bet there with be bickering and arguing over whose plan get stuck with them if there are participant fee implications and bickering and arguing over who should be blessed with them if their are reductions in asset management charges implications...

[MoJo]

And if there is a termination with asset run-off, there will be lots of bickering internally when an aging workforce no longer has sufficient resources to retire and productivity slips and health care costs SKYROCKET....

At some point, those of us in the retirement plan industry need to remember that the assets we help participants accumulate are for ... retirement.

[Lou S.]

And if there is a termination with asset run-off, there will be lots of bickering internally when an aging workforce no longer has sufficient resources to retire and productivity slips and health care costs SKYROCKET....

At some point, those of us in the retirement plan industry need to remember that the assets we help participants accumulate are for ... retirement.

Wait, you mean retirement plans are for accumulating retirement plan assets for participants retirement needs and not just getting a tax deduction for the owner?

[Belgarath]

All excellent points, and the input is much appreciated.

I will say that in situations where the employees are not losing their jobs, in general if there's a good broker, I haven't seen too much run-off of assets - they just roll it over.

[jpod]

A spin-off or split up seems like the way to go, if only because terminating/liquidating a plan can take quite a while and it sounds like these two individuals want to get away from each other ASAP. This, of course, assumes that each owner or his/her counsel has a sufficient comfort level that the existing plan is "clean" and their respective new plans won't inherit any "warts" from it.

[MoJo]

All excellent points, and the input is much appreciated.

I will say that in situations where the employees are not losing their jobs, in general if there's a good broker, I haven't seen too much run-off of assets - they just roll it over.

Yea, but..... Come next April 10th, that will be an issue even for good "brokers."

The stats still indicate way too much run-off (each situation is different), but....

[david rigby]

Caution. If the owners are "splitting up" with some negative attitudes, some of the employees might reflect those negative attitudes.

- If each owner expects to "take half of the existing employees", don't overlook that the employees also have the ability to say No.

- If the owners expect a particular employee to work for owner A, that employee might decide to work for owner B.

- The "spinoff" mentioned above might anticipate a particular split of employees, but that might not reflect actual results.

[jpod]

David Rigby, good point, but that can be handled by deferring the split-up/spin-off until the dust settles. They can operate the plan as a multiple employer plan until then. Yes, lot's of reasons to dislike multiple employer plans, but this is a case where doing so for 5 minutes (figuratively speaking) may make sense.

On the other hand, what are we talking about here? Are there 5, 6, 10 employees, or 100+? If this is a tiny plan with very modest assets I might turn 180 and suggest terminating it.

[Belgarath]

Small plan (15-20 participants) with modest assets.

[Belgarath]

So a little more. It appears the route that will be taken is to spinoff a portion of the plan to one of the new employers, and the other new employer will assume the assets and liabilities of the remaining portion of the plan. So far, so good.

Now, this won't take place until sometime next year. Current plan provides for no allocation conditions for PS allocations. I'm thinking that to keep things cleaner, they should amend now to impose a last day/1000 hour requirement for next year, so that the existing plan will have no obligation to make any contribution for the "spinoff" employees. Does that make sense? Then when it comes to coverage/testing, each plan will just be on their own - transferor plan will just use full year 2017 comp for its remaining employees, etc., and spinoff plan will just base on comp from date new spinoff plan is established.

Am I all wet on this? I should know better than to consider such questions on a Friday afternoon.

Thanks.

[K2retire]

Sounds reasonable to me.