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PS plan - company being sold


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We currently administer a profit sharing plan, the employer may possibly be selling the business.  The purchaser will be buying the assets of the company and changing the name of the company, as well.

I know you can't have a plan w/o a sponsor, but is there a specific time limit (excluding the IRS12 month rule) within which to distribute, rollover, etc. after the company is no longer in business.

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If the buyer is buying the assets of the old company then the old company still exists.  It will be a company with nothing but the proceeds from the sale.  The person who owns old company needs to wind down the PSP before he fully liquidates the old company.   So until old company is fully liquidated there is a sponsor. 

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6 hours ago, ESOP Guy said:

If the buyer is buying the assets of the old company then the old company still exists.  It will be a company with nothing but the proceeds from the sale.  

Maybe.  While the above statement is often correct, don't overlook the possibility of other relevant circumstances.  There could be some remaining employees, or some remaining assets, or some other related business, or the owner might immediately purchase something else, etc.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I work on these sorts of transactions all the time, but have only rarely had to follow up after closing. Does not seem to be a problem. Although your facts could differ, based on experience there will likely be a corporate shell only, with no employees, but one or more shareholders and one or more directors. The corporation will usually stay in existence for awhile to wind up its affairs, of which the 401(k) is only one. The corporation will receive the funds from the asset sale and there may be accounting and tax issues before the liquidation proceeds can be paid to shareholders.

Usually the former employees want their distributions pretty quickly, so that would be a source of pressure. And the buyer will want the employees to be happy, so that would be another source of pressure to get it done.

Most states' corporate laws provide that the corporation stays in existence so as to have authority to wind up its affairs even post-liquidation. There is IRS guidance (a Revenue Ruling if I recall) that states that you generally should wind up within 12 months unless that is not administratively feasible. But you also have fiduciary issues, e.g. fees and control and oversight of investments or investment choices, so the sooner you can liquidate the plan, the better.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Fully agree with all of Luke Bailey's points. If it's close to the end of a plan year, they may consider the cost of another 5500/audit as well. That, and the employees' desire to get their money, are the two biggest pressure points I see. I typically don't see asset sellers waiting for no reason. We generally require that they terminate their plan before closing (or shortly thereafter) either way. 

That said, I have seen one asset sale where the selling shareholder was going to keep the corporate entity alive and operate a somewhat-related business with at least himself and a few other employees. He wanted to keep the 401(k) in place so never terminated and just let everyone take their (fully vested due to partial term) distributions and roll them over to the buyer's plan. 

All depends on the circumstances. 

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