Dealing with Final Deferrals in Terminated 401(k) Plan

[401 Chaos]

Am thinking I had previously found a good discussion on this issue either here or elsewhere but I cannot seem to locate now. I am trying to come up with guidance to employer on how they are required to handle the final paycheck / compensation amounts being paid in connection with a merger.

Here seller has monthly payroll, deal is expected to close Nov. 21st. Buyer is requiring Seller to terminate 401(k) Plan immediately prior to closing. Seller will continue post-closing as a subsidiary of Buyer and will continue to employ existing employees but they will be eligible to participate in Buyer's 401(k) post-closing.

The paycheck for November will not be delivered until end of the month and so after closing. They care concerned about having any additional contributions hit the terminated plan after the closing date, even if the amounts are pro rated so that only 401(k) contributions on comp earned up through the termination date is used for plan purposes. Payroll provider is saying they cannot pay early or pro rate deferrals, etc. to help out.

Am curious as to what folks see as the usual and customary procedure here and whether there is any flexibility. We seem to see and hear different things from different recordkeepers, prototype plan sponsors and payroll administrators.

Thanks

[ETA Consulting LLC]

If the plan is "terminated" at any time before the payroll date, then no deferrals should be withheld from pay. If the plan is terminated any time after the payroll date, then those deferrals are made under the current written terms of the plan (and are plan assets at the time they are withheld from pay; at least in the DOL's perspective).

Good Luck!

[QDROphile]

The plan should be amended in connection with the termination to specify the effective date in terms of the last pay period that is subject to elective deferrals. Depending on the nature of the transaction, the last pay period may end the day before or day of the closing and it may be a short pay period -- no prorating necessary and hope that the hidebound payroll provider can at least cope with that. To minimize lost opportunity, you need to understand the corporate aspects of the deal and work around them.