Control Group Distribution

[Biz Develop Consultant BJF]

We have an participant who worked for Company A (of a control group) and her job was transferred to Company B (of a control group).  Company A sponsors a DC Plan with section 401(k) and Company B sponsors a DC Plan with employer source (only) funds.  Said participant is seeking to take a withdrawal of her balance from Company A 401(k) Plan and the question arose about her having a distributable event. 

If review of the IRS guidance, https://www.irs.gov/pub/irs-drop/n-02-4.pdf, Section III seems to suggest that if both companies have section 401(k) then no distributable event is present.  However, company B only has employer source funds and no 401(k).  Am I interpreting incorrectly here?

 

[ETA Consulting LLC]

Are you saying that there is a severance employment? If so, then how?

[Mike Preston]

To the OP: there is no distributable event. To BG: Are you responding to a different post?

[BG5150]

7 minutes ago, Mike Preston said:

 To BG: Are you responding to a different post?

Never mind.  Long weekend.

[Doc Ument]

Even for a multiple employer plan, the IRS generally requires language in the document that an individual is treated as being continuously employed by "the Employer" if the individual goes from one adopting employer to another but UNRELATED adopting employer.  Thus, I think any IRS-approved or preapproved plan will have language that would compel the employers to treat a transfer to any other employer that is related (I.e., within the controlled group or affiliated service group) as a continuation of employment with "the Employer," though not necessarily with language that is conveniently explicit (look first to the definition of "Employer").  And in the absence of finding such language, I would find the regulation(s) underpinning these usual provisions and interpret the plan accordingly.   Although not on point, but going in the same direction, not even a terminating 401(k) plan may distribute assets related to the ADP requirements to the participant if there is another DC plan in the controlled group to which the funds can be transferred (there may be an exception if the other plan is an ESOP).