Mergers & Acquistions

[justatester]

Let's suppose you have a company that was acquired in July 2013. In July 2014, the plans actually merge together and now you have 1 plan. (A is the surviving plan- Plan B merged in on 7/1)

Testing:

For Coverage, you would perform it as/of the end of the plan year.

For ADP/ACP, you have the option of testing each one separately from 1/1-6/30/14 then together for 7/1-12/31.(option1) You can test plan B from 1/1-6/30 separately, Plan A's test runs from 1/1-12/31 but only includes Plan B from 7/1. (option 2) Or, you can test them together from 1/1-12/31/14. (option 3)

Let's just say you go with option 3:

From 1/1-6/30, participants in plan b received a match of 50% up to 4%. Then effective 7/1, they moved to Plan A's match of 100% to 5%. Would BRF testing be required? I believe yes. What happens if plan B does/would not pass BRF (high concentration of HCEs & very few NHCEs)?

Now let's say they have other provisions that were different between the 2 plans, but as of 7/1 they all will follow Plan A's provisions-they were all more generous. Would other features need testing as well? Vesting, Distributions options, after-tax availability, etc. What if Plan A did not have a match at all during...what testing would be requried?

Any help would be greatly appreciated!

[MWeddell]

This doesn't affect your main questions, but option 1 is not permitted. Plan A has a 1/1/2014 - 12/31/2014 plan year and nothing in the regulations permits you to break that up into two 6-month periods for ADP / ACP testing.

If you go with option 3, then you might argue that BRF testing is performed with a 12/31/2014 snapshot date, in which case there are no BRFs that fail to be available to all plan participants. To do this, you would have to argue that 12/31/2014 is a representative date even though for half of the plan year, the BRFs were quite different. That's an aggressive enough position that I would warn the client to review it with legal counsel.

You also could go with option 2, not aggregating Plan B with Plan A. That would more clearly eliminate the BRF testing issues and you likely could use the Code Section 410(b)(6)© merger & acquisition transition period to avoid any coverage testing difficulties.

[anspai]

I've got a client that is in the process of acquiring two entities but doesn't want to wait until year end to merge.

Facts:

Unrelated Company A acquires Companies B & C (also both unrelated to A and unrelated to each other).

All run calendar year plans. A wants to merge both into A as of 5/1/15.

A is a traditional 401k plan

B is a traditional 401k plan

C is a safe harbor match plan

Does B test it's plan from 1/1 - 3/31?

Does A include B's participant contributions from 4/1 to 12/31 or full year?

Does C lose the safe harbor test exemption for contributions made from 1/1 - 3/31

Does A include C's participant contributions from 4/1 to 12/31 or full year?

Also if A's plan allows for predecessor service with B & C for eligibility and vesting, how does A treat B and C's HCE's in the first year (2015) they are in A's plan?

Lastly, Assume the following:

B's plan had a 3 month wait and A's had a 12 month wait.

A's plan allows for predecessor service with B for elig and vesting

Sam is a participant in B's plan with 8 months of service.

With these assumptions, even with predecessor service Sam has not met the waiting period for A's plan. But because Sam was already eligible for B, does he become eligible for A's plan immediately or can A require him to meet the waiting period for A's plan before Sam can enroll?

I'd appreciate any input you might have.

[LMOC]

I have this same situation right now.

I know that C loses it's Safe Harbor exemption for the entire year and will have to be tested for the short plan year. Remember to suspend the Safe Harbor certain requirements have to be met.

http://www.irs.gov/Retirement-Plans/Reducing-or-Suspending-Safe-Harbor-401(k)-Matching-and-Nonelective-Contributions-Midyear

I would thinke Plan B and C can be tested separately for the short plan year 1-1-2015 to 4-30-2015. You have until the plan year end following the year of acquisition to test the plan's separately. The only contributions B and C include in A's testing is as of 5-1-2015.

Participants would go under the provisions of Plan A as of 5-1-2015.

Sam would have that 8 months of service, but would still have to wait until he completed 12 mos. Or Plan A could be amended to allow all employees coming over from Plan B and C to be eligible as of 5-1-2015.