asset sale of company

[thepensionmaven]

Prospect sold his company (s-Corp) effective 2/1/2018 - strictly asset sale.

Employees were terminated 12/31/2017 and were not hired by the purchaser.

Remaining employees are seller and spouse, no common law employees

As of 2/1/18, it is the same company but with a new name, employer ID# same.

Seller wants to start a defined benefit plan. Since the corp EIN  the same, is it feasible to start the plan 1/1 under the old corp, then change sponsor and name of plan 2/1?

Or make effective date 2/1 and prorate the salaries 12/11ths and have a short year 2/1-12/31/2018.

[Bill Presson]

Create and sign the plan currently, with the current sponsor name and EIN, but make the effective date 1/1/18. No reason to have a short year or name change or anything. It's the same company.

[david rigby]

BTW, was there a prior qualified plan?  if so, were the participants given 100% vesting?

 

[dan.jock]

1.401(a)(4)-5 prohibits amendments (including adoption of a new plan) that would discriminate in favor of HCE's.  The conventional wisdom here is that your client should only count years of service and compensation from 1/1/18 forward.  If salary and service with the predecessor employer are used to get a large DB contribution, that would be discriminatory since all those employees were around in the predecessor employer and are not getting anything.

[Bill Presson]

44 minutes ago, dan.jock said:

1.401(a)(4)-5 prohibits amendments (including adoption of a new plan) that would discriminate in favor of HCE's.  The conventional wisdom here is that your client should only count years of service and compensation from 1/1/18 forward.  If salary and service with the predecessor employer are used to get a large DB contribution, that would be discriminatory since all those employees were around in the predecessor employer and are not getting anything.

There is no predecessor employer. It's the same employer.

[Mike Preston]

I would be a little looser than Dan. You can include some past service if not discriminatory. 

[Bill Presson]

I'm really confused about the discussion of including prior service. It's the same company. The guy didn't sell his company, he sold the assets of the company and changed the name. It's the same EIN.

 

[Mike Preston]

The issue is avoiding discrimination.  Crediting past service is technically easy, but doing so for HCE('s) after NHCE's have left the boat is discriminatory unless doing so can satisfy non-discrimination.