Plan termination - when can distributions be made

[Santo Gold]

Company A has a 401k plan as does Company B

Company A is sold to Company B.  Company A employees are now Company B employees.

No plan merger happening.  Company A will terminate their 401k plan, but not for a few months.

Can former Company A employees take distributions from Company A 401k plan immediately since they are no longer Company A employees?  Eventually they will with when the plan termination date is decided, but can they do so before then?

Thank you.

[Santo Gold]

There is a follow up question:  Who decides (who signs) for Company A's plan termination, Company A owners or Company B (since Company A no longer exists)?

[C. B. Zeller]

Stock sale or asset sale?

If asset sale: A still exists as a shell company and the owner(s) of A can sign on behalf of A. The participants can take distributions right after the sale date since they are no longer employees of A.

If stock sale: B is now the sponsor of The Company A 401(k) Plan and has the authority to sign. Participants can not take a distribution until the plan termination date. Termination triggers the successor plan rule and B may not be allowed to maintain a 401(k) plan for 1 year after the distribution date. This is why, with a stock sale, it is important to terminate the seller's plan before the sale date, or be prepared to merge the plans.

[david rigby]

A few thoughts (there are probably other relevant questions):

• Are the facts presented accurate?
• Are the facts presented complete?
• Did the buy-sell agreement contain any provisions relevant to the future of the plan?
• Did the buy-sell agreement alter (or attempt to alter) any plan provision of the A plan?
• Does A still exist or is it a wholly owned subsidiary of B?
• What does the A plan say about a distributable event?
• Does anyone in authority at B know what's going on?
• Has legal counsel for B made any statements about this?

[Peter Gulia]

To David Rigby’s questions about what might lurk in the deal documents, someone might consider adding, for each might-be provision:

Is the supposed provision merely a wishful statement?

If a provision is somebody’s obligation, exactly which person, whether artificial or human, is obligated?

Is the obligation consistent with, or contrary to, applicable law? Or relevant law?

Even if not contrary to law, is the obligation legally enforceable? By which person? A? B? Some other person, whether artificial or human?

This is not advice to anyone.

And Santo Gold might wonder: Does my company have a current service agreement with A? Does my company have a current service agreement with B? Does my company desire to revise either service agreement, or both?

[QDROphile]

Santo Gold might also ask: What is my Company’s responsibility with regard to determining the answers to the relevant questions or simply following instructions (other than determining whether or not there is a service agreement with anyone with respect to which the Company is obligated)?

Are the questions in the post a matter of curiosity or are they a matter of gaining some advice for making some judgments. decisions, or recommendations that will be passed on to a client?

[CuseFan]

Another unfortunate case that we see all too often, the questions that should have all been asked, answered and documented before the transaction are surfacing afterwards when it it likely too late to do what the parties had hoped to do.

As the consultant to at least one of the parties (which I assume you are) the best you can do is assemble all the relevant facts and communicate what you believe (in your professional opinion) the parties (or at least your client) can and cannot do in accordance with your understanding of applicable law and regulation.