spinoff in CG Safe Harbor plan situation

[Belgarath]

Let's look forward to 2020. Suppose corporation X and Corporation Y are a controlled group, each owned 100% by Winnie the Pooh. Corporation A is the Plan sponsor, and Corporation B is signed on as a Participating Employer.

Winnie decides to sell Corporation A to Tigger on 6/30/2020. Tigger has no interest in maintaining a plan, because he's bouncy and fun, and 401(k)'s are not. So Corporation A's plan will be terminated effective 6/30/2020.

Winnie, however, wants to maintain the Corporation B plan (it invests primarily in honey pots, which Winnie deems Socially Responsible Investing), so will spinoff the Corporation B portion of the Plan.

Because this is a 401(b)(6)(C) transaction, the Corporation A Plan should qualify as a Safe Harbor Plan through 6/30/2020, the termination date. Corporation B adopts a new plan document with identical provisions for the initial short Plan Year of 7/1/2020 to 12/31/2020, and the Spinoff assets are transferred to the new Plan - for the Corporation B employees, this is not a distributable event, and 100% vesting is not required. This Plan should also qualify as a Safe Harbor for the 2020 short Plan Year.

Am I missing anything here? Whenever something seems relatively straightforward in these situations, it makes me nervous.

Hope you all have a great Thanksgiving holiday - drive carefully, and hopefully the weather won't interfere with your travel plans!!

P.S. - just for the heck of it, suppose this transaction takes place on, say, 11/30/2020 - can corporation B still have a Safe Harbor plan for the 1-month plan year? I'd argue that they can, since the spinoff plan, although a "new" plan document, is considered to be a continuation of the prior plan. Since the provisions will be identical, seems reasonable. But on this subject, what about the 5500 forms - do you show it as a "new" plan 001? I lean toward that, as otherwise, seems like it will confuse the DOL system if you don't show it as a new plan. Also, would you set up your new document as a "new" plan, or an amendment/restatement of the existing plan? I lean toward amendment/restatement, even though for 5500 forms, I lean toward "new" plan.

[C. B. Zeller]

How about amending the plan to name B as the sponsor, and then terminating A's participation? 

[Luke Bailey]

C.B. Zeller's suggestion seems right to me (in addition to being very clever). I think it also demonstrates why, if you did things the way you suggested in your OP, Belgarath, B's "new" plan should be a treated as a successor.

[Larry Starr]

11 hours ago, C. B. Zeller said:

How about amending the plan to name B as the sponsor, and then terminating A's participation? 

Exactly what I would do. Good thing you asked, because your solution is certainly overkill; it is a simple solution.  Interesting that you said:  "Whenever something seems relatively straightforward in these situations, it makes me nervous".  Just a reminder: NOTHING in our business is every straightforward! ?

Happy T-day to everyone.

 

 

[Belgarath]

Thanks!

[Belgarath]

P.S. - I assume the responsibility for terminating the A portion plan is part of the sale and purchase negotiation between Winnie and Tigger?