termination/merger of 401(k)

[Guest cngriffin]

Please forgive me for posting this question twice but I really need some help!

Facts: Company A acquired the stock of company B and the two are in a parent-sub relationship (Company A is parent, company B is subsidiary). Both company A and B have their own 401(k) plans.

Question: After the stock acquisition took place, can company B terminate its own 401(k)? Or, would a termination be a sort of "de facto" merger of the two plans?

Follow up questions:

(1) What if company A acquired less than 80% of company B's stock? Does that avoid the required aggregation rules such that company B can now terminate its own plan?

(2) What if company B has an ESOP that owns 30% of company B's stock and company A owns the other 70%. Does the ESOP prevent the application of the required aggregation rules thus allowing company B to terminate the 401(k) without it being a defacto merger of the plans?

Thank you very much for your assistance.

Charles Griffin

Raleigh, NC

[KJohnson]

If company A and Company B are in the same control group, my understanding is that Company B can only terminate its 401(k) plan if fewer than 2% of company B's employees are then covered under Company A's exisiting 401(k) Plan (or any defined contribution plan other than an ESOP or SEP). Otherwise, you must wait 12 months to establish any other defined contribution plan for company B's employees.