Controlled Group - Sale of some entities

I have a client that has 5 entities, all owned 100% by Person 1. A-E.

The 401k plan is set up under company A. Companies B-E are adopting employers.

Companies A-D are being sold on August 1. They will be 100% owned by an unrelated company from Person 1.

Person 1 will still own 100% of company E and the sole purpose of Company E will be to perform management functions for companies A-D.

Since there is no common ownership as of August 1 between companies A-D and company E, is E still part of the controlled group? Can employees of company E still participate in the plan either for the remainder of the year, until August of next year or must their participation end on August 1?

E will no longer be part of the same controlled group after the sale. Based on your description it is possible that a management function ASG might still exist, which would have the same effect as being a controlled group for most purposes.

If there is no ASG, and if no participation agreements are revoked, the plan will become a MEP on 8/1 since there would be more than one unrelated employer participating in the same plan. That may or may not be what they wanted.