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Same Desk RuleThe "same desk rule" has been a significant roadblock to the distribution of 401k assets after a corporate acquisition, liquidation, merger, or consolidation. Under this rule, a participant in a seller's retirement plan may not receive a distribution of his or her account balance if the participant becomes an employee of the buyer "at the same desk" because a "separation from service" had not occurred.As part of The Economic Growth And Tax Relief Reconciliation Act of 2001 (EGTRRA), this rule changed. "Under the new law, the phrase 'separation from service' is replaced with the term 'severance from employment.' Distributions can now occur upon "severance from employment" rather than "separation of service" - so that an employee who works at the same job for a different employer after a merger or acquisition can now receive a distribution from the former employer's plan." However, plans are still permitted to limit the definition of "severance from employment" to that of the old same-desk rule. Also, EGTRRA does not change the rule that no distribution is allowed if plan assets and liabilities relating to a 401k plan are transferred to the employee's new employer as part of the corporate transaction. The change is effective for distributions after December 31, 2001. IRS Notice 2002-4 explains that plans may be amended on or after January 1, 2002, to reflect the repeal of the same-desk rule to provide for distributions from Section 401k plans following "severance from employment," even if such severance occurred before January 1, 2002. Further Reading IRS Eases "Same Desk" Rule - Expanding Permissible 401k Plan Distributions |
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