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Violation of Successor Plan Rules


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Company A merges with Company B.  Company A and Company B have 401(k) plans.  Company B terminates their 401(k) plan.  There are 5 employees total in company B, 2 of the 5 employees transfer into Company A's 401(k) plan but 3 of the employees take a cash distribution.  There is also a parent company, and they want to be conservative and file VCP for the failure.  How would you present this for correction under VCP?  Any thoughts would be appreciated!

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Base don what you've provided, it is unclear as to the sequence of events.  Did A & B merge, then B terminated the plan?  Or did B terminate the plan, and then merge with A?

It makes a difference....

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However, building on MoJo's points, if the plans merged, there is no more Company B 401(k) Plan which could terminate post-merger and there is no violation of the successor plan rule. Therefore, there would be no need to do a VCP filing. So the crux of our points is: what merged and when, the companies, the plans, etc?

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Let's see if I can clarify, Company A acquires Company B in August 2022.  Company B terminated the plan as of October 31, 2022.  Both companies were part of a controlled group with the Parent Company C.  Company A became a controlled group on September 1, 2021 and Company B became a controlled group on July 8, 2022.  All 3 companies have their own separate plans at the time of the acquisition.  I appreciate the help, this is not something you run into everyday!

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I agree with directing the client to approach qualified ERISA counsel to prepare the VCP filing. I'm thinking the VCP filing might focus on putting the participants/former participants in the place they would have been if B's 401(k) had merged into A's 401(k). Most difficulty likely to be with 3 participants who took distributions based on the impermissible termination of B's 401(k). Just some off the cuff thinking here. Hope you find good help.

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