Sale of assets.

[Guest]

If a business sells at least 85% of its assets to another company, employees who continue to work for the acquiring company are eligible for distribution of salary deferrals from the selling company's plan if the acquiring company does not assume sponsorship of the selling company's plan. IRC 401(k)(10)(A)(ii) provides this exception to the same desk rule only if both businesses are corporations.

I have a situation where the buyer is a partnership and the seeler is a corporation. The buyer acquires all the assets of the seller and does not assume sponsorship of the seller's plan. All of seller's employees now work for buyer. The seller continues as a corporate entity with a board of directors but no assets or employees.

The seller now wants to terminate its plan and permit distribution of salary deferral assets. Would plan termination without a successor plan exception to the same desk rule apply? My research indicates that the buyer is not the same employer but a new employer. Therefore, the the buyer's plan is not a successor plan. Nevertheless, I'd thought I'd put the question out for discussion.

[KJohnson]

If it is an asset deal between two otherwise unrelated employers and the buyer does not assume the plan, then my understanding is that the seller can terminate the plan and make distributions after the transaction because there is no successor plan.

I have always thought of the "same desk rule" as the "barrier" if you are trying to distribute due to a separation from service and the "successor plan rule" as the barrier if you are trying to distribute due to a plan termination.