Withdrawal of Participating Employer

We have a 401(k) plan with related participating employers.  One participating employer (the owner and his wife) is terminating its participation in the plan.  Is this a distributable event?  I think it is not as the plan did not terminate, one of the employers just terminated their participation in the plan. If it is not, a distributable event, are those account balances still included in the TH test? Any other TH considerations? I think  those employees would be included in the 410(b) test. 

What if it was a multiple employer plan?

I would appreciate any guidance/thoughts.

Plan did not terminate so it is not a distributable event.  Whether or not balances are included in TH test is a function of those employees' status, terminated vs. active.  For testing purposes, employees of the non-adopting employer are excluded employees not benefitting.

2 hours ago, PensionPro said:

Plan did not terminate so it is not a distributable event.  Whether or not balances are included in TH test is a function of those employees' status, terminated vs. active.  For testing purposes, employees of the non-adopting employer are excluded employees not benefitting.

Hmm, not sure if we have enough facts.  The PE withdrawal could be a mere cessation of future contributions (full vesting, but not a distributable event); or, it could be a spin off plan that could then be terminated creating a distributable event.

Another hmmm, the "for testing purposes" comment: unless plans pass 410b then they are aggregated for testing even if the Single Employer group member doesn't adopt the plan.  416 looks at 414 to determine the employer.

From 1.416

Example 1.
An employer maintains two plans. Key employees participate in one plan, but not in the other. If the plan containing key employees independently satisfies the coverage and non-discrimination rules of sections 410 and 401(a)(4), it may be tested independently to determine whether it is top-heavy. Also, the plan not covering key employees would not be part of a required aggregation group and would not need to be tested to determine whether it is top-heavy. However, if the plan containing key employees satisfies the coverage requirements of section 410(b) or the non-discrimination requirements of section 401(a)(4) only when it is considered together with the other plan in accordance with § 1.410(b)-1(d)(3), the plan not covering key employees would be part of the required aggregation group.

34 minutes ago, QP_Guy said:

Hmm, not sure if we have enough facts.  The PE withdrawal could be a mere cessation of future contributions (full vesting, but not a distributable event); or, it could be a spin off plan that could then be terminated creating a distributable event.

Another hmmm, the "for testing purposes" comment: unless plans pass 410b then they are aggregated for testing even if the Single Employer group member doesn't adopt the plan.  416 looks at 414 to determine the employer.

From 1.416

Example 1.
An employer maintains two plans. Key employees participate in one plan, but not in the other. If the plan containing key employees independently satisfies the coverage and non-discrimination rules of sections 410 and 401(a)(4), it may be tested independently to determine whether it is top-heavy. Also, the plan not covering key employees would not be part of a required aggregation group and would not need to be tested to determine whether it is top-heavy. However, if the plan containing key employees satisfies the coverage requirements of section 410(b) or the non-discrimination requirements of section 401(a)(4) only when it is considered together with the other plan in accordance with § 1.410(b)-1(d)(3), the plan not covering key employees would be part of the required aggregation group.

Hmm, not quite sure what you are saying, particularly the references to spinoff plans and multiple plans, as the original post relates to one plan.  But to clarify, when I said those employees are treated as not benefitting for 410(b) purposes, it does not mean they are excluded from the test itself.

Is this a controlled group or multiple employer plan, I think the answers might be different in each case.

You said "related" participating employers so I am going on the assumption that this is a controlled group or an affiliated service group.

If they are still working for the member of the CG/ASG, they are under age 59-1/2, and there is no hardship, then no distributable event has occurred. 

All members of a CG/ASG are treated as a single employer for purposes of 416, so they are included in the top heavy test.

They would be included in the coverage test as nonexcludable, not benefiting.

This all changes if this were a MEP, i.e. if a CG or ASG does not exist. In that case top heavy and coverage are tested separately. However it would still not be a distributable event. It may be possible to spin off a new plan and terminate that plan, which would then be a distributable event.

On 6/28/2018 at 9:10 AM, C. B. Zeller said:

This all changes if this were a MEP, i.e. if a CG or ASG does not exist. In that case top heavy and coverage are tested separately. However it would still not be a distributable event. It may be possible to spin off a new plan and terminate that plan, which would then be a distributable event.

Curious.  If the PE is no longer part of CG / ASG  - still no distributable event?  Could you make the case that the same desk rule apply?  Also would the 401(k) successor plan rules apply to the PE even though there was no plan termination?