Stock acquisition/Controlled group

Hi, 

Good Morning!

One of the plan is terminating due to stock acquisition and the term date and sale date happens to be the same date 01/2022, however there has been contribution (employees) coming into the plan until 03/2022.  As per their counsel this is not a successor plan and they have filed for VCP, also the acquiring company is part of a controlled group and they counsel has also stated a consent to terminate the plan was adopted BEFORE closing and before the entity became part of a controlled group with other entities. 

Couple of things. 

1. Participants from the terminating plan will not be moving into the acquiring plan. Instead they are moving to a new 401k plan that will be set up by using the same EIN. 
2. They could wait to transfer amounts from the old plan to the new plan until the IRS has responded to the VCP filing However, there’s no guarantee of that. If it takes longer than that, they would reevaluate

3. As per they counsel the plan was terminated BEFORE closing. The options for distributions/transfers will be different for pre-closing contributions and earnings versus post-closing contributions and earnings.

   Counsel has stated Contributions and earnings for pre-closing payroll period: Participants must be given the right to take a distribution of their accounts for pre-closing contributions and earnings. They will be offered the option to have these amounts transferred/rolled over to the new plan. Contributions and earnings for post-closing pay periods: These should not be distributed. Post-closing contributions and earnings would be transferred automatically to the new plan (if approved by the IRS).

I've handled successor plan previously however this is something completely new, this is something doable? Will there not be a successor plan situation?

Thanks

On 3/16/2022 at 11:27 AM, PS said:

Hi, 

Good Morning!

One of the plan is terminating due to stock acquisition and the term date and sale date happens to be the same date 01/2022, however there has been contribution (employees) coming into the plan until 03/2022.  As per their counsel this is not a successor plan and they have filed for VCP, also the acquiring company is part of a controlled group and they counsel has also stated a consent to terminate the plan was adopted BEFORE closing and before the entity became part of a controlled group with other entities. 

Couple of things. 

1. Participants from the terminating plan will not be moving into the acquiring plan. Instead they are moving to a new 401k plan that will be set up by using the same EIN. 
2. They could wait to transfer amounts from the old plan to the new plan until the IRS has responded to the VCP filing However, there’s no guarantee of that. If it takes longer than that, they would reevaluate

3. As per they counsel the plan was terminated BEFORE closing. The options for distributions/transfers will be different for pre-closing contributions and earnings versus post-closing contributions and earnings.

   Counsel has stated Contributions and earnings for pre-closing payroll period: Participants must be given the right to take a distribution of their accounts for pre-closing contributions and earnings. They will be offered the option to have these amounts transferred/rolled over to the new plan. Contributions and earnings for post-closing pay periods: These should not be distributed. Post-closing contributions and earnings would be transferred automatically to the new plan (if approved by the IRS).

I've handled successor plan previously however this is something completely new, this is something doable? Will there not be a successor plan situation?

Thanks

 

Any thoughts on this one? 

That's a pretty specific fact pattern, and a proposed solution with no real basis in the law, so in my opinion it's hard to come to a clear answer.

If the IRS approves the proposed correction, then it should be fine. If the IRS doesn't approve, then they would have to find a different way to handle, maybe by treating the old plan as being terminated post-closing and merging it into the new plan, or maintaining it as the go-forward plan, or maybe try to distribute all post-closing contributions as ineligible.

In any event, I don't think there's a clear-cut answer to whether it's okay given the pending VCP submission. 

21 minutes ago, EBECatty said:

That's a pretty specific fact pattern, and a proposed solution with no real basis in the law, so in my opinion it's hard to come to a clear answer.

If the IRS approves the proposed correction, then it should be fine. If the IRS doesn't approve, then they would have to find a different way to handle, maybe by treating the old plan as being terminated post-closing and merging it into the new plan, or maintaining it as the go-forward plan, or maybe try to distribute all post-closing contributions as ineligible.

In any event, I don't think there's a clear-cut answer to whether it's okay given the pending VCP submission. 

Thank you!