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Guest Grumpy456

Granting Past Service Credit

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Guest Grumpy456

Company A sponsors a 401(k) Plan. On January 1, 2007, Company A acquires 100% of the stock of Company B. As of January 1, 2007, Company B becomes a wholly owned subsidiary of Company A. Company B does not and never has sponsored a qualified plan. Company A has maintained the 401(k) Plan for 10 years.

Henry has been an employee of Company B for 4 years as of January 1, 2007. On January 5, 2007, Henry is transferred from Company B to Company A. As of January 5, 2007, does Henry have:

(1) 4 days of service for eligibility and vesting purposes for Company A's 401(k) Plan; or

(2) 4 years and 4 days of service for eligibility and vesting purposes for Company A's 401(k) Plan?

Put differently, is service with Company B (a predecessor employer) treated as service with Company A (the entity maintaining the plan at issue)?

Thanks in advance for any help!

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Not clear cut issue. You can't ignore service prior to effective date of plan for eligibility. You can, but don't have to, ignore for benefit credit.

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Company B employees start to accrue service credit for the plan on January 1, 2007 unless action has been taken to impute service for B for purposes of the service requirements under the plan. Imputed service can be granted for some or all purposes.

Company B employees were "hired" by the Company A controlled group upon acquisition of Company B.

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I don't think it is quite that clear. At least I have not found a regulation on point. We all know that service with any member of a controlled group counts as service for any other member of the controlled group. What is undefined is whether or not service prior to becoming a member counts.

I look at it this way: If Bob buys Bill's stock and thereby acquires Bill's company, everyone in the company retains their service credit. In my mind, if Newco buys Otherco there is no difference and everyone in Otherco retains their service in Otherco. Now since they retained their service, and now they are a part of a controlled group, their service with Otherco counts as service with the CG. Predecessor employer rules are not part of this since the employees did and still do work for Otherco.

So I think the aforementioned employee has 4 years and 4 days since he changed employers AFTER the acquisition.

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Guest Grumpy456

Thanks for the replies. I agree with rcline46. Let me change the facts a little. Suppose that Company B also sponsored a 401(k) plan at the time of the acquisition and that Henry had an account balance in that plan then equal to $10,000. Of the $10,000, $8,000 was 401(k) deferrals and $2,000 was from a company match in which Henry was 60% vested (so his vested share of the matching contribution was $1,200 of the $2,000). Now Henry works for Company A. Does Henry's additional service with Company A count toward increasing his vested share of the matching contribution? I think it does. What do others think? Thanks again!

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If A and B are CG then his service with A counts toward vesting under B.

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