Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

Retirement Plan Administrator

Kentucky Trust Company
(Danville KY)

Kentucky Trust Company logo

Employee Benefits and Executive Compensation Associate Attorney

(Portland ME / Boston MA)

Verrill logo

Jr Retirement Plan Administrator/ Administrative Assistant

Hochheiser Deutsch & Co, Inc.
(Melville NY)

Hochheiser Deutsch & Co, Inc. logo

Fund Administrator

Plumbers Local Union No. 1 Benefit Funds
(Long Island City NY)

Distribution \ Loan Clerk

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

DC Plan Administrator

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Executive Compensation Lawyer

Trucker Huss, A Professional Corporation
(Remote / San Francisco CA)

Trucker Huss, A Professional Corporation logo

Retirement Plan Relationship Manager

ERISA Services, Inc.

ERISA Services, Inc. logo

Retirement Plan Consultant

Carpenter Morse Group

Carpenter Morse Group logo

Administrator/Consultant (DC and DB)

TPA Professionals

Retirement Plan Documents Specialist

Loren D. Stark Company

Loren D. Stark Company logo

Retirement Plan Administrator

Farmer & Betts, Inc.
(Remote / WA)

Farmer & Betts, Inc. logo

Retirement Plan Legal Specialist

(Remote / West Harrison NY)

Pentegra logo

Retirement Plan Administrator (TPA)

Retirement Plan Consultants

Retirement Plan Consultants logo

Compliance Analyst

(Remote / West Harrison NY)

Pentegra logo

Retirement Plan Specialist

RTD Financial Advisors
(Philadelphia PA)

RTD Financial Advisors logo

Retirement Plan Consultant

(Remote / Norwich NY)


Employee Benefits & Executive Compensation Associate Attorney

Polsinelli PC
(Chicago IL / Dallas TX / Kansas City MO)

Polsinelli PC logo

Retirement Plan Administrator

Nicholas Pension Consultants
(Remote / Corona CA / Rancho Cordova CA)

Nicholas Pension Consultants logo

Sales Consultant

EPIC Retirement Plan Services
(Remote / Norwich NY / KY / MA / ME / OH / PA / VT)

EPIC Retirement Plan Services logo

Quality Assurance Manager

Bates & Company
(Remote / Winter Park FL)

Bates & Company logo

View More Employee Benefits Jobs

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Change in the Employer

(Posted February 27, 2003)

Question 253: At Q 11:2 of your book, you address the issue of what is a change in group membership that qualifies for a free pass of the participation and coverage requirements. You cite the Section 410(b) regulations that say, in part, "an asset or stock acquistion, merger or other similar transaction involving a change in the employer..." What does "involving a change in the employer" mean?

Answer: Before we can understand the regulation, we need to understand the statute from which it comes. IRC 410(b)(6)(C) gives a temporary free pass saying, "If a person becomes, or ceases to be, a member of a group described in subsection (b), (c), (m), or (o) of section 414," and certain other requirements are met, "then the requirements of this subsection shall be treated as having been met during the transition period with respect to any plan covering employees of such person or any other member of such group."

So the Code is dealing strictly with the formation or dissolution of controlled groups, ASGs, etc. Let's look at some examples. In each case we will assume that the plan satisfies the requirements of IRC 410(b) immediately before the transaction and that coverage does not change thereafter.

First Co. has a calendar year qualified plan which provides that only First Co. employees are covered. In 2000 First Co. buys 90% of the stock of Second Co. The two now are a controlled group. First Co.'s plan is entitled to a free pass of the coverage tests of 410(b).

In 2002 Second Co. buys all of the stock of Third Co. First Co., Second Co., and Third Co. now are a single controlled group. First Co. is entitled to another free pass, even though it was not directly involved in the transaction, because membership of its group changed.

In 2004, Second Co. sells all of the stock of Third Co.; First Co. and Second Co. still are in a controlled group, but Third Co. is no longer part of the group. First Co. is entitled to another free pass, because a business ceased to be part of its group.

Finally, in 2006, First Co. sells 25% of its Second Co. stock. First Co. and Second Co. no longer are a controlled group. First Co. has another free pass.

Now we come to Treas. Reg. 1.410(b)-2(f). This regulations extends the free pass to all "acquisitions and dispositions." In doing so, the regulation says, "For purposes of section 410(b)(6)(C) and this paragraph (f), the terms "acquisition" and "disposition" refer to an asset or stock acquisition, merger, or other similar transaction involving a change in employer of the employees of a trade or business."

The first question is, does this language cover at least the same ground as the statute? (If not, the statute obviously controls.) I believe it does cover all the situations the statute covers. What happens when 2 businesses become part of a controlled group? Under IRC 414(b), all employees of those businesses are deemed to be employed by a single employer. In other words, using the example above, in 2000 the employees no longer were employed by First Co. Rather, they were employed by a new single employer, First-Second. This is the approach IRS Notice 2002-4 takes in dealing with severance of employment.

What other transactions would be covered under the regulations that would not be covered under the statute? Here's an example:

Alpha Corp. runs a grocery store, as does its competitor, Beta Corp. On February 28, 2003, Alpha Corp. decides to buy nearly all the assets of Beta Corp. All the Beta Corp. employees come to work for Alpha Corp. A controlled group never was formed or changed, but there has been a change in the employer. If Alpha Corp.'s plan, just before the transaction, had been amended to cover all employees working at all Alpha Corp. stores that Alpha Corp. operated on February 27, 2003 (and thereby excluded all the Beta Corp. employees), the plan would be entitled to a free pass under IRC 410(b)(6)(C), thanks to the regulation.

Other situations, such as mergers, also can give rise to a free pass.

The transition rules for changes in group membership are detailed, but unfortunately they do not consider a variety of important issues. I discuss those rules in depth in Chapter 11 of my book, Who's the Employer.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2023, Inc.