Merging 401k plans with no acquisition or sale

I have a 401k plan that is asking if they can merge into the plan of another employer.  There has been no transaction between the 2 companies.  They are still separate ongoing entities.  The employees in my 401k plan have all had their employment terminated with the plan sponsor.  All of these employees were hired by another company and now the 2 companies are asking if the plans can be merged.  

the language in the document doesn't specify that a merger may only take place as a result of an acquisition.  What about the participants that terminated?  If we are allowed to merge, do they have to be offered an opportunity to take distributions since their terminations occurred before any merger?

Thank you 

Does your plan still have active employees?  It's not really clear what is going on; you say there is no transaction between employers but yet one seems to have terminated some or all of its employees and the other has hired them.  You could do a spinoff of some assets and merge into another plan.  I'm not sure if that is better or worse than just treating the employees as terminated and letting them roll their accounts into the other plan as they desire.  A merger means the participants have no choice.

jkharvey, from time to time I've had reason to think a little about this or at least similar issues. I don't think you are going to be able to find anything in ERISA or the Code specifically on point. In asset sale transactions, the buyer usually wants the seller to terminate the plan, but occasionally the buyer will want the seller's plan and the deal documents will say that the seller will permit assumption of the buyer's plan, and the plan may be amended before the assumption to make clear that this is permissible. Although in that context, allowing the seller's plan to be assumed by buyer and merged into buyer's existing plan seems to have a more obvious business purpose, it is still the case that, as in your circumstances (which, as Bird points out, you haven't yet fully explained), the plan sponsor is essentially permitting another company to become the sponsor, in effect transferring sponsorship. Again, there may be case law where this has been an issue, but I am not aware of any provision of ERISA or the Code that would bear directly on this. IRC sec. 414(l), for example, merely provides the standards for what happens in a plan merger, not when you can do a plan merger.

Your risk would be that an employee who wants a distribution based on his/her termination of employment sues to get it, saying that the plan document's rules for distribution on termination had not been followed, or that the buyer commits a fiduciary breach after the transfer of sponsorship/merger and the employees who lose money because of the breach sue saying that the seller's allowing the buyer to take over the plan was a failure to follow plan documents and/or a breach of fiduciary duty.