Asset Acquisition

[PS]

Hi, 

I have a plan that is terminating due to asset acquisition, the sale date was 12/31/2021 however they had a transactional service agreement due to which the participants are contributing until 04/30/2022 and on 05/01/2022 there will be part of the acquiring company plan.  The termination date will be 04/30/2022, since the part are still contributing into the plan we will not be able to start the termination process.  When there is a TSA I thoughts its only for administration reason but did not know the part could contribute into the plan, can the contribution continue? 

Thanks 

[Lou S.]

From 1/1 - 4/30 are the employee still employed by the "old acquired" company and being hired by the "new acquiring" company on 5/1?

Is the acquiring company taking over sponsorship of the plan or is it remaining with the old company?

[PS]

13 minutes ago, Lou S. said:

From 1/1 - 4/30 are the employee still employed by the "old acquired" company and being hired by the "new acquiring" company on 5/1?

Is the acquiring company taking over sponsorship of the plan or is it remaining with the old company?

Yes, currently they are with the acquired company and as of 05/01 they will become part of the new company.  The acquiring company has asked to terminate the plan ( Old acquired).  its only a asset sale. 

[Lou S.]

Is old company paying them through 4/30? If yes I don't see a problem with this but then I'm not an employment attorney.

[PS]

26 minutes ago, Lou S. said:

Is old company paying them through 4/30? If yes I don't see a problem with this but then I'm not an employment attorney.

yes, its the old company that is paying them.  what in case if it was the new company what will be the repercussion?

[Lou S.]

Again not an employment expert but to me it sounds like the Old company is the employer until 4/30 and the old plan still covers the employees like it always has.

If it was the new company was paying them, then they would be employees of new company and I'm not sure how they continue making contributions to the old plan without the new company becoming an adopting employer or taking over sponsorship of the Plan. And if that did happen you could have successor plan issues with the new company if they tried to terminate.

[EBECatty]

This happens fairly often in asset sales. While you could probably argue either way regarding who the common-law employer is during the transition period, generally the employees are treated as employees of the seller during the transition period and often can continue to contribute to the seller's 401(k) plan. The seller's 401(k) is then terminated when the employees are terminated from employment with the seller and hired by the buyer (i.e., the end of the transition period). 

[david rigby]

5 hours ago, PS said:

 ... and on 05/01/2022 there will be part of the acquiring company plan.  

This implies the EEs will be participating in the "new" plan on 05/01, but ...

Quote

... and as of 05/01 they will become part of the new company

this might imply only employment status.  The seller should have negotiated immediate participation; if not, someone dropped the ball.

[PS]

14 hours ago, EBECatty said:

This happens fairly often in asset sales. While you could probably argue either way regarding who the common-law employer is during the transition period, generally the employees are treated as employees of the seller during the transition period and often can continue to contribute to the seller's 401(k) plan. The seller's 401(k) is then terminated when the employees are terminated from employment with the seller and hired by the buyer (i.e., the end of the transition period). 

Thank you!