Grandfathered SARSEP Through Acquisition

[Christine Roberts]

Is it possible to acquire a grandfathered SARSEP through the purchase of the business that sponsored it? Does it matter if the purchase is of stock, assets, or just purchase of a professional practice? Does acquisition of the SARSEP have to be express in order for it to survive the acquisition?

[actuarysmith]

I would think that if it is an asset purchase only, then the Sarsep would not be part of the acquisition.

If it is a stock purchase, then the sarsep becomes part of the "deal". Once that occurs, you would need to look at eligibility, coverage and participantion, etc. and likely terminate the sarsep or expand coverage to pass.

[Gary Lesser]

I'd seek a PLR if the acquiring entity did not have a SARSEP. To state otherwise, would make businesses with grandfathered SARSEPs more valuable. I'd apply the same reasoning to an entity that became controlled, related, or affiliated with an entity that had a grandfathered SARSEP.

[Christine Roberts]

Gary, is your response conditioned upon a situation in which a sale of stock, not just assets, took place? I.e, do you agree w/actuarysmith that there is no grandfathering absent a sale of stock? And, finally, if the purchaser of assets did make SARSEP contributions (deferrals and match) on behalf of employees who continued to work after the asset sale, is it necessary to "unwind" those contributions?

[Gary Lesser]

Is the new employer only benefiting "old" employees under the SARSEP? If so, how are they excluding the other employees from the SARSEP?

I am of the opinion that the SARSEP DIED unless the old business is the legal predecessor under state law. Assuming only the assets were purchased, I think the SARSEP to be undone in respect to the "new" contributions and a 10% penalty paid by the new employer. However, we don;t have any regs on the definition of sucessor employer under section 414(a). Grey area! Conservatively I think the SARSEP did in fact die!

Also, see my reply to message entitled "Excess matching contribution in SIMPLE IRA."