Deferrals stopped ... new owners - new payroll service

[K-t-F]

A dental practice was sold and the new doctors who purchased the practice took over payroll.  I was not made aware of the sale until after it was finalized .  As a result deferrals were not withheld or paid in.  Employees paychecks were bigger as a result and no one spoke up.  Is there a cure?  Instead of making everything right with one correction to an employee's next paycheck, can the missed deferrals be spread out over a few paychecks?

Thanks

[Bird]

Was it an asset sale or stock sale?  Somehow I doubt that the new owners are operating the old company (that would be a stock sale).

In other words, I'd guess that the new business does not have a plan and they were right to not withhold deferrals.

[Larry Starr]

13 minutes ago, Bird said:

Was it an asset sale or stock sale?  Somehow I doubt that the new owners are operating the old company (that would be a stock sale).

In other words, I'd guess that the new business does not have a plan and they were right to not withhold deferrals.

Agreed, and the old owners (and you) should be dealing with the termination of the plan and distribution of assets to the participants who no longer are employees of that sponsoring entity.

[K-t-F]

The new owners paid cash and took over the name, clients... everything.  That would be a stock sale... agreed? 

[Bird]

17 hours ago, K-t-F said:

The new owners paid cash and took over the name, clients... everything.  That would be a stock sale... agreed? 

As you describe it, yes.  But I'm still skeptical.  Let's back up - are we talking about a corporation or some other entity, presumably a partnership or LLC taxed as a partnership?  Are they using the same tax id number?

[shERPA]

20 hours ago, K-t-F said:

The new owners paid cash and took over the name, clients... everything.  That would be a stock sale... agreed? 

No.  Could be either an asset or stock transaction.  Until this is known, it is impossible to evaluate the 401(k) issues. 

[Larry Starr]

2 hours ago, shERPA said:

No.  Could be either an asset or stock transaction.  Until this is known, it is impossible to evaluate the 401(k) issues. 

Agreed. You need to ask the simple question. Was it an asset sale or a stock sale? ASK and get back to us when you have the answer. 

[K-t-F]

Just heard back from the CPA.  Indeed it was an asset sale.  So my question now is... Can the entity that purchased the business continue to maintain the plan as it exists?  If so, what steps should we take?

Appreciate the help.

[shERPA]

OK.  Assuming the buyers did NOT adopt the plan, then things are as they should be.  Participants terminated their employment with the plan sponsor (the selling entity) and were hired by the buyer entity.  So the buyer entity has no plan, there are no deferrals to be withheld, etc.  The participants are terminees in the seller's plan and should be receiving distribution information.

It's up to the buyers to determine if they want to set up an plan, but they don't have to.   If they do, generally they should set up their own new plan, not adopt the seller's plan.  One of the big reasons these transactions are done as asset sales is that buyers don't want to assume the liabilities of the seller.  A plan is one such potential liability, so why take it over?  And it avoids spending a lot of money in due diligence on the plan as well.  

[david rigby]

If the buyer creates its own (new) plan, it can recognize service with the seller for purposes of vesting.  And probably should.