401(k) Asset Sale/Assume Plan Sponsorship Questions

[Interested Party]

Here is the situation:

* LLC sponsors 401(k) plan.

* S Corp owns 100% of LLC.

* S Corp is selling 100% of LLC's assets -- including the name of the LLC -- to three current individuals/employees as of 12/31/24.  The three employees will become equal owners/members of the LLC following the asset sale.

* The three individuals will assume sponsorship of the plan and continue to operate the LLC and the plan under the same names.

Have I thought this through correctly?

1. Documents need to be drafted, stating that the three individuals will operate the LLC under the same name and will assume sponsorship of the plan.

2. This transaction will constitute a continuation of the plan (i.e., no distributable event, crediting of service will be required, etc. as if this was a corporate stock sale).

3. The plan does not need to be restated and the plan will file a 5500 as a continuing plan.

4. No formal transfer agreement is needed . . . . Just documentation stating that the new buyers/owners of LLC will accept all assets/liabilities associated with the plan.

5. Am I missing something?  Do I need to obtain additional information and/or take any other action in connection with the transaction?

Any help/insight would be appreciated.  Thanks.

 

[Bill Presson]

For #1, I assume there will be a new LLC with a new EIN even though the name is the same. So you'll need to amend the plan to have the new sponsor take over sponsorship.

For #2, The plan stays the same so this is correct.

For #3, the plan isn't restated (maybe) but does need to be amended showing the new sponsor. The 5500 will file under the new sponsor EIN/PN and you'll show the old filing information under Part II, 4 (assuming 5500 SF).

For #4, other than the amendment above, I don't see anything else needed.

[Interested Party]

Bill:

Thanks for the response.  Last night, after I asked the question, I realized there needs to be a new EIN/employer. . . . And that's the piece I was missing in thinking this through.  Thanks again for the helpful response.