Can Asset Seller Distribute Plan While Becoming ASG Member with Buyer?

Seller of assets terminated its 401(k) plan the day before the asset sale to Buyer.  In connection with the transaction, some Seller employees became employed by Buyer, while others remained employed by Seller.  The transaction also created an affiliated service group comprising Buyer and Seller.  Employees of Seller hired by Buyer and employees remaining with Seller will all participate in Buyer's 401(k) plan, with Seller becoming an adopting employer of Buyer's plan.  Can Seller distribute the accounts under its terminated plan or is this a violation of the successor plan rule?

8 hours ago, Plan Doc said:

The transaction also created an affiliated service group comprising Buyer and Seller.

How? Unless there is a management service group, there has to be some common ownership in order to have an ASG. An asset sale (by definition) doesn't involve the transfer of ownership. So unless there was an ASG before, the mere sale shouldn't have the effect of creating an ASG.

If there actually is an ASG, then the two companies are treated as a single employer. So the question becomes, can the employer who maintains two 401(k) plans terminate one and have a distributable event while continuing to maintain the other? The answer is no.

On 12/20/2021 at 11:11 AM, C. B. Zeller said:

How? Unless there is a management service group, there has to be some common ownership in order to have an ASG. An asset sale (by definition) doesn't involve the transfer of ownership. So unless there was an ASG before, the mere sale shouldn't have the effect of creating an ASG.

Saw a few of these in the dental industry over the last 3-4 years.  Buyer purchases everything except the entity itself, seller gets cash and ownership in buyer to reduce buyer's cash outlay.  Seller then agrees to service contract wherein buyer provides everything back to seller necessary for practice to continue as was.  Then you have a management service group; and in limited cases, sufficient common ownership for ASG!

Buyer will usually deny the above; but oddly is also aware enough to stipulate that any 401k Plan needs to be merged into their own.