Stock Sale and Distribution of Assets

[PMC]

Company A is in the process of purchasing enough stock of Company B that they will consitute a controlled group. Company A intends on terminating its 401(k) plan prior to that transaction and distribute the assets to participants.

After the sale is finalized a new 401(k) will be established but ONLY for the employees of Company A (Company B has a 401(k) but the employees of Company A will not be eligible to participate in that Plan and vice versa -(410(B) has been satisfied).

1. Does the fact that they are now a controlled group and the old Plan was maintained and terminated by one employer (i.e. Company A) and the new Plan is established and maintained by a new employer (i.e. Company B & Company A controlled group), permit a distribution of elective deferrals from the old Plan and starting up a new one within 12 months of the distribution, even though this new Plan is just for Company A's employees?

2. Would it make any difference if the new Plan was drafted with the "employer" being defined as "Company A and any other member of the controlled group adopting the Plan" but it excludes any other member from participation in the eligibility requirements?

They do not want to continue the old Company A plan.

How do you think the IRS would view this? The intent is clearly to terminate and distribute and start a new plan just for the employees of Company A.

[alanm]

I don't think it will work. The successor plan rule will apply to A. They should merge the old plan into the new one.

The fact that A acquired B is a re-structuring of A not the formation of a new entity. B is the one who could terminate their plan before being purchased, under certain circumstances, and provide for distributions.

[Richard Anderson]

Why terminate the plan, or merge into a new plan? Why not just amend the old plan into what the plan sponsor wants?

[PMC]

Thanks for the responses but I messed up. The first line in my question should have read Company A is being purchased by Company B. So Alanm, looks like you answered the question in your last sentence.