Successor Plan Rules

[ARPC]

I have a situation where Company A started  401(k), contributed, took loans, and then Company A went bankrupt. Although the business is closed the 401(k) maintained active status to avoid loan default and classification as taxable income. 6 months later the same owner started another business, of the same industry type, and 3 of the same employees. A new 401(k) was opened and the owner requested to transfer the loans into the new 401(k). Because this is a same owner with a request to transfer assets, is this a successor plan or new plan with rollover? Thank you for any input. 

[david rigby]

Does the plan have language that automatically terminates the plan if the sponsor goes bankrupt and/or ceases to exist? 

[ARPC]

No there is not 

[Mike Preston]

Sounds like the plan is orphaned.  Have you looked at the orphaned plan issue?  Assuming the owner wants to put his/her head in the sand with respect to it being an orphaned plan, the answer to your question rests with the owner.  If they treat the new plan as a related plan then it can't be a rollover, it has to be a transfer.

[ESOP Guy]

There are possible side issues with the loans. 

Many 401(k) loan notes say the note becomes due upon terminations of employment.  If those notes say that than the notes may have gone into default not because of pension law but because that is how the note which is a contract says happens.

If the note says loan payments will be done via payroll deductions and they were making payments by personal check what implications does that have for the note? 

There might be other issues but those two come to mind quickly. 

[Luke Bailey]

If the plan was not terminated, the loans either defaulted or not, e.g. based on payment defaults and expiration of the cure period. If they defaulted, then you cannot undefault them. If they did not default, then you can transfer all of the assets from the old to the new plan, including the loans, and I don't think it matters whether the new plan is formally a successor for purposes of the 415 or 411 rules, although it probably is. There are some details I'm skipping over, but I think that's basically your situation if I understand the question.

[ARPC]

thank you!

[Bird]

Assuming the issues with the loans are ok (i.e. there is no reason to think they have defaulted), and you seem to indicate they are indeed ok, then it boils down to how to get the loans and the money "transferred" into a new plan.  In my opinion, that would require a plan merger (I don't know what "transfer" would mean otherwise).  So that would mean establishing a new plan and then merging the old into the new.  That is safest, in my opinion, as far as continuing the loans.

But here's a not-so-stray thought:  why not just have the new company become the adopting employer for the existing plan?  I don't see any reason not to do it and it saves a lot of trouble.  The old company may not exist (or it may) but I don't think anyone will question the owner signing a consent to let the new company become the adopting employer.

[Luke Bailey]

ARPC, as I said in my post, I was skipping over some details on how to do the "transfer." Bird has supplied them.