Stock sale of plan participating in a MEP

Looking for guidance on the following scenario.

If a participating employer in a MEP completes a stock sale of one of their entities which is covered by the MEP 401k and the new owner is not eligible to participate in the MEP (and participants are not eligible for distribution due to the same-desk rule) is it correct that the new owner would still be responsible for plan documentation and participant communications? 

I have not encountered a controlled group with several entities all participating in a MEP, so I would be interested to hear from others, but in that case generally wouldn't each separate entity have to sign on to the MEP as a participating employer?

Or is there some concept of a participating employer in the MEP (parent company) with "sub-participating" employers (subsidiaries or affiliates of the parent)? 

7 hours ago, Jen S said:

(and participants are not eligible for distribution due to the same-desk rule)

There is no same desk rule, at least for last 20 years. For any participants who were terminated by seller, regardless of whether they are hired by buyer, they terminated employment so can take distributions.

Actually, I would disagree respectfully, Luke.  If you have a parent company that "sponsors" a plan and a subsidiary participates in the plan, there may be a same desk rule (This is the last remaining vestige of this rule.)  if the subsidiary continues to participate in the plan after it is sold to a third party.  So, if X company is a participating sponsor in a MEP and a subsidiary is also participating in the MEP, there would be no distributable event unless the provisions of Treas. Reg. section 1.401(k)-1(d)(6), Example ii.

Jen, how this is treated in a MEP situation is largely dependent on how the MEP has been adopted and maintained by the controlled group. I can't really go through all the permutations here.  I would spend the money to buy 10 minutes of attorney time to go over the details, if i were you .... 

8 hours ago, Ilene Ferenczy said:

Actually, I would disagree respectfully, Luke. 

Actually, Ilene, looking back at my answer I think I may have misread the question and thought this was a stock sale. You make a good point. But having said that, still not sure what the right answer is, and maybe Jen S can clarify facts. Best guess from a close reading of the OP, it looks like Parent had a Sub and several other subs and probably (not stated) Parent, Sub, and other subs were all in MEP. Acquiror buys Sub out of Parent's controlled group, and MEP will not let Sub stay in MEP, and presumably Acquiror is not in MEP. I guess the MEP plan document could state differently, but it seems to me that under the rule in the 401(k) regs that treats an acquiror's purchase of one entity out of a controlled group that maintains a plan as a separation from service of the employees of the purchased entity from the former controlled group employer as long as the buyer does not also maintain the same plan, you'd have a separation from service. But maybe the MEP's plan document and administrative procedures would have an impact. Clearly, the MEP would have to process the distributions as separation from service distributions. They could not spin off into a plan to be terminated, unless, as seems unlikely, the acquiror does not have any defined contribution plan at all, permitting distributions on account of plan termination.

Yes, Luke, we now agree.  If the participation of the subsidiary in the MEP terminated prior to the acquisition, then the exception in the regulations would apply and the MEP could make payments to the subsidiary's employees.  But, if action was not taken to terminate the subsidiary's participation in the MEP before the transaction, i agree that the money would either need to stay in the MEP (and, I guess, the MEP would charge the former parent for those accounts), or the MEP would spin off the plan to be a separate, inactive plan to pay benefits to the sub's employees as they terminate, or the MEP would spin off the plan to be merged into the new parent's plan.  If the new parent has no plan, then the spun-off sub plan could be terminated and distributed.

But, Yuck!!! 

4 hours ago, Ilene Ferenczy said:

Yes, Luke, we now agree. 

👏😃