My company recently purchased another company. The other company has a 401k plan. Does that plan have to be terminated or can it be merged with our plan? Either way what steps need to be taken?

The existence of a qualified plan and any liabilities of the selling employer with regard to that plan should have been addressed before the acquistion took place.

Generally, if the sale is an asset sale, the plan, the plan remains with the seller and the seller continues to be responsible for it, but if the sale is a stock sale, the acquirer becomes the sponsor of the plan and now has all obligations of the plan (unless it was terminated prior to the sale).

In many cases, the plan is specifically addressed in the purchase negotiations and purchase documents. If in this case it was not, you need to do the analysis now to determine who is responsible for the plan.

If you (the acquirer) are responsible for the plan, you need to decide what you want to do with it. In many cases, the plans are merged for simplicity, cost and employee relations reasons, but it is perfectly acceptable to maintain separate plans for separate locations/divisions/etc provided certain non-discrimination rules are satisfied (talk to your pension consultant or attorney).

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