Freezing a DC Plan Following Stock Purchase

[Towanda]

Our 401(k) client (the Buyer) acquired a company in November through a stock purchase.  The Seller has an existing 401(k) Plan that was not terminated prior to the acquisition.

The Buyer wishes to bring employees from the acquired company into their 401(k) Plan effective for the first pay period in 2022.  The plan document has boilerplate language that excludes employees acquired under a 410(b)(6)(C) transaction.

By preparing a Joinder Agreement, my understanding is that the transition period is voided since this Joinder would serve as an amendment to the Buyer's plan.  I assume the first line of defense is to freeze the Seller's 401(k) plan effective January 1, 2022 until the Buyer decides whether they will:

• Permanently Freeze the 401(k)
• Merge the Seller's 401(k) into theirs
• Maintain 2 plans (highly unlikely)

I have been asked to put together an outline that breaks down the implications of each decision.  I've found most of what I need, but I am having trouble locating information on freezing a DC plan.  In fact, it isn't clear to me why, in a stock purchase, a plan termination is off the table if the plan wasn't terminated prior to the acquisition.  

Let's throw another wrench in the works.  Existing client has a SH Match, and acquired client has a SHNEC.  What are the implications in a merger?  The more I think about it, the more tangled it becomes.

I have access to the 2021 EOB, but haven't found anything pointing to freezing a DC plan, or explaining why it is too late to terminate the Seller's plan.

Can anyone point me to a resource, or provide me with a location in the EOB that will assist me in my response.

Thank you!

 

[C. B. Zeller]

4 hours ago, Towanda said:

In fact, it isn't clear to me why, in a stock purchase, a plan termination is off the table if the plan wasn't terminated prior to the acquisition.  

Under 1.401(k)-1(d)(4)(i), you can not make distributions from a 401(k) plan upon plan termination if the employer sponsors another defined contribution plan at any time within the 12 months after the distributions from the plan are complete. This is sometimes known as the successor plan rule. Because this was a stock purchase, the purchaser is now the sponsor of both plans, so they could not terminate one while continuing to maintain the other. They either have to maintain both indefinitely, or merge one into the other.

[Luke Bailey]

Towanda, now that C.B. Zeller has filled in that piece for you, I just want to add that I think what you have outlined in your post is a pretty good rundown of the issues and possibilities.