to merge or terminate...

[Guest SJPrince]

Ok Company A bought Company B in a stock swap. B to be a subsidiary.... now A purchased all the assets of B and many of the employees are gone from B. What do i do with B's 401(k) plan? merge them? or terminate?

B's employees are all 100% vested under B's plan and i just found out that some of B's employees are still paying off loans that they received from their accounts.

figuring that there is no partial termination issue here and that i have the choice of to merge or terminate.... any suggestions?

[pjkoehler]

You say that Company B was acquired by

Company A in a stock-for-stock deal. The transaction results in Company B becoming a member of the Company A controlled group of corporations. Since the acquiring company typically assumes the liabilities of the acquired company, the fate of the acquired company's 401(k) plan is normally given detailed treatment among the reps and warranties and the selling shareholders' covenants set forth in the acquisition agreement. This apparently didn't happen, which means that you're in the position of determining what exposures Company A will have with respect to the Company B 401(k) plan. This is essentially a due diligence function that logically should have been completed before the close of the transaction, since it may well have had a materially adverse affect on the value of Company B.

If you suspect there are major compliance issues, you may want to consider your self-correction options by maintaining the Company B Plan as a frozen plan for a couple of Plan Years, continuing to allow the participant's with loans to service those loans. Terminating the plan at this point will probably not constitute a distribution event anyway, at least for the 401(k) portion of the plan. Until you figure out the compliance posture of the Company B plan and any form or operational asymmetries that may make plan merger problematic, you probably don't want to go there. At least not as your first option.