Get an ERISA attorney to bless any merger or asset sale

If your company is buying the stock or the assets of another company, get an ERISA attorney to review if there is a retirement plan of your target involved. Too many corporate attorneys forget to call in an ERISA expert and think they can handle it on their own and can’t.

I’ve seen too many errors involved in these corporate transactions especially in-stock purchase and the advice is given to terminate the 401(k) plan of the corporate target, without concern to the not-so-famous successor plan rule.

The successor plan rule provides that a 401(k) plan which is terminated cannot distribute participants’ elective deferrals if the employer maintains or establishes a “successor plan” (a.k.a., an alternative defined contribution plan) within a certain period of time following the termination. A similar rule also exists for 403(b) plans. When a 401(k) or a 403(b) plan is terminated, a successor plan would be one that exists at any time during the period beginning on the date of plan termination and ending 12 months after all the assets from the terminated plan are distributed. So that means a terminated 401(k) plan couldn’t be replaced by another 401(k) plan within the waiting period. The same with a terminated 403(b) plan could not be replaced by another 403(b) plan within the waiting period. (However, an employer terminates its 403(b) plan can set up a 401(k) plan with no waiting period if it is otherwise eligible to do so and vice versa.)

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