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Dealing with Entry Dates when Crediting Prior Service


401 Chaos
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Buyer in an asset deal has agreed to credit prior service with target for various benefit plan purposes including general eligibility / vesting requirements for the 401(k) Plan. The Buyer's 401(k) Plan does not have a minimum service requirement per se (new employees are eligible right away); however, the Buyer's 401(k) does generally limit entry into the plan to the first day of the month following commencement of employment.

How should a plan address this issue when crediting prior service with an acquired company. Administratively, the buyer would prefer to have the acquired / transferred employees just start in the 401(k) as of the first of the following month but transferring employees want to come in immediately upon commencing employment arguing that with credit for prior service their "first day of the month" should be construed as having already been satisfied.

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Mike,

Many thanks. In your experience, is that the most common way of handling these issues? In this particular case, I think there is probably some reluctance / inability in getting a specific amendment timely approved by the buyer's Board (i.e., they did the deal and are trying to close today without thinking about the 401(k) plan issues or involving benefits counsel on the front end).

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Then they are fools whose employees will most likely suffer. If the plan isn't amended to create the special entry date then they simply will not come into the plan until the next entry date if the plan is properly administered according to its terms.

However, when there are congruent ignorant events the result is, in the absence of discrimination, a happy one for the participants, if not the plan sponsor. Event 1: Company management ignores the need to amend the plan. Event 2: HR is ignorant of the requirement to amend the plan and then administers the plan as if the special entry date was in effect. Then you have an operational failure which can most likely be corrected by a retroactive amendment under EPCRS. More expensive for the plan sponsor than amending the plan in contemplation of the event. The happy event turns into a most unhappy event if those who are let into the plan improperly lean to those who are either key or HCE. While unlikely in the scenario you describe unless you can enumerate those impacted how can you be sure?

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