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Company with two DC plans and wants to merge them.


Guest jen graber

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Guest jen graber

A company has two plans: profit sharing & 401(k) plan. Both plans have different vesting schedules. The 401(k)plan has a provision for discretionary contribution. The company wants to merge the plans for ease of administration. Would all employees in the PS plan have to be 100% vested upon termination of the PS plan? If not, how would you handle the different vesting schedules. Any direction would be greatly appreciated.

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I think you are confusing plan merger and plan termination. These are two separate and distinct forms of plan transactions. You have described a plan sponsor with 2 profit sharing plans, one plan has a qualified Cash or Deferred Arrangement ("CODA"), the so-called 401(k) Plan, and the other plan does not have a CODA. The merger of these two plans and the transfer of the assets and liabilities from the transferor plan to the surviving plan does not per se trigger a termination of the transferor plan, with its requirement for accelerated vesting. While you must observe the requirements of Code Sec. 414(l), that should be relatively straightforward in this setting.

As a practical matter, it might be easier to treat the plan without the CODA as the transferor plan and the 401(k) Plan as the surviving plan. To effect a merger the board of directors typically authorizes the merger and transfer of assets from the transferor plan and the amendment and restatement of the surviving plan to cover the employees of the transferor plan and to accept the transfer of the assets, etc. Unless you are careful to consider the unique features of the transferor plan, e.g. 411(d)(6) protected benefits, you can end up violating a basic qualification requirement. So you will want to inventory all of the plan design differences between the two plans, figure out which of them are 411(d)(6) protected benefits, and of those, whether the transferor plan or the surviving plan is more stringent in that respect. To the extent that the surviving plan is more stringent regarding such benefits, you'll want to amend the surviving plan to ensure that you at least grandfather the protected benefits of the transferor plan, e.g. if the transferor plan has a more rapid vesting schedule than the surviving plan, then you should make sure that the amended and restated merged plan continues to apply this vesting schedule to the transferred accounts.

[This message has been edited by david rigby (edited 05-18-2000).]

Phil Koehler

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