sale of assets of corporation

[k man]

my client has sold all of its assets to another company. the company that aquired the assets maintains its own 401(k) plan. the client would like to terminate the plan, vest all the participants and make a distribution to everyone. the plan is currently frozen. I believe they can do this based on the exception to the same desk rule. Is this the correct logic? How does the successor plan rules impact this issue?

[pjkoehler]

I think the "rules applicable to distributions upon plan termination" will permit distribution of elective contribution accounts to all participants because the seller is clearly not establishing or maintaining another defined contribution plan that covers these former employees and the buyer is an "unrelated employer." Treas. Reg. Sec. 1.401(k)-1(d)(3). Under those circumstances, the plan does not also have to comply with the "rules applicable to distributions upon sale of assets or subsidiary" set forth in Treas. Reg. Sec. 1.401(k)-1(d)(4). Similarly, assuming the plan so provides, plan termination will permit distribution of the nonelective contribution accounts without regard to the "same desk" rule, because the distribution event is not predicated on a "separation of service" by the seller's former employees.