We are a small business that is closing our doors (possible bankrutpcy in near future). The owner is shutting the existing company and beginning a new company with new tax id number, new name, new address, etc..

We do not want to pierce the corporate veil of the existing company or show any linkage between the two companies due to possible lawsuit down the road.

The old company has a 401k plan and our plan was to shut the existing plan under the old company down and send out distribution/roll over forms to everyone. The new company was going to create a new 401k plan for the new company and that would be an option for the employees who were going to the new company. Is this possible to do? Is is violating any laws, successor law, ect?????

We thought it would be okay because the two companies are totally separate from each other and the old company will no longer be in business.

Please let me know what you think.

Confused by the question. Plan assets can't be touched by outside lawsuit even if they go bankrupt.

I guess the basic question is can one company close business and close the 401k plan and then open a new company with new name, new tax id, new address and open a brand new 401k plan and then employees who choose to go with new company can either roll over into new 401k plan or cash out. Will this violate any ERISA rules such as the successor rule? Thanks

Are the owners of the second company the same as the owners of the first? If there are two owners and one start new company you don't have successor plan. Is this corp, sole proprieter or what?

If the ownership is the same, you will have to distribute all the funds to participants (suggest IRA rollover), start the one year clock ticking and then when year is up you can start new plan.

I think that the notion of successor corporation is perhaps a bit more involved than simply any difference in the identity of the owners between the two entities under consideration--and the threshold under the federal common law for tagging a later company as the successor of an earlier one is lower than under most states' laws.

The old company is a corporation and the new company is an LLC. They are both owned by the same physician.

You will have successor plan. Still don't understand the need to end one and start a new one. Just have LLC adopt the old plan.

Well, the reason they wanted to close one and open a new one under the new company was to prevent any linkage between the two companies due to a possible lawsuit that could hit the old company.

Next question: if the LLC adopts the plan, will this force ex- employees out of the plan like it would have if we closed the plan? We have several ex employees that will not do anything with their 401k's except to let them sit in our 401k and then we pay the accounting, etc..

Or do you know of something that the physician's 401k plan could be rolled into to that does not have a cap? He has 3mil in his 401k and is hoping that he will not have to file personal bankruptcy in addition to the corporate bankruptcy? If he files personal bankruptcy, obviously he would not want his 401k attacked by creditors....

You can only force a balance out if it is under the 5,000/1,000 amount - depends on which you plan uses. They could continue to let the amounts sit.

From what you are saying you need specific legal counsel, not general advice from the boards. You will have lost arms length transaction if you adopt the old plan in my view. My suggestion is to terminate the plan and let folks do IRA rollovers. Wait you time and then allow them to roll into new plan.

With the physician having $3m in the 401k and concerned about creditors, I'd investigate and weigh the pro's and con's of creditor protection of an ERISA plan versus a rollover IRA before term'ing the 401k and rolling over to an IRA.