ERISA Biker Posted May 19, 2017 Share Posted May 19, 2017 Here are the scenario and the questions: Company A acquires 100% of Company B (stock deal). Each company maintains its own 401k plan. After the acquisition, Employee X is transferred from Company B to Company A. As a result, Employee X begins to participate in Company A's 401k plan and stops participating in Company B's 401k plan. Question 1: For purposes of vesting employer contributions under Company A's 401k plan, must Company A give vesting service credit to Employee X for his service with Company B prior to the corporate acquisition? I think no, but would appreciate some thoughts. (I think it is agreed that vesting service credit must be granted for the period of time after Company B joined Company A's controlled group.) Question 2 (this question assumes that the answer to Question 1 is no, otherwise this question, I think, is moot): If, after Employee X begins working for Company A and participating in Company A's 401k plan, Company B's 401k plan is merged into Company A's 401k plan, must Company A's 401k plan give Employee X vesting service credit for his service with Company B prior to the corporate acquisition? I think so based on IRC 414(a) and Reg 411(a)-5. Again, would appreciate some thoughts. Link to comment Share on other sites More sharing options...
Mike Preston Posted May 19, 2017 Share Posted May 19, 2017 I think 2 is moot. Would love to see chapter and verse in support or in opposition. Link to comment Share on other sites More sharing options...
Lou S. Posted May 19, 2017 Share Posted May 19, 2017 I thought if you bought the stock you bought the history. I don't see how A can exclude the service accrued under B unless this is an asset sale. Link to comment Share on other sites More sharing options...
ERISA Biker Posted May 22, 2017 Author Share Posted May 22, 2017 My view on Question 1 is as follows: When Employee X transfers to Company A and begins to participate in Company A's 401k plan, he receives service credit for his future service with Company A and for his prior service with Company B since the date that Company A acquired Company B. I have not found anything in IRC 414 or 411 that requires the Company A 401k plan to give service credit to Employee X for his Company B service before Company B became a member of Company A's controlled group. Mike and Lou seem to be saying otherwise. Any authority that I can be pointed to on that? Contrast this with the analysis under the Company B 401k plan: Employee X receives service credit for his entire service with Company B (the plan sponsor), both pre- and post-acquisition. Employee X also receives service credit for his service with Company A once he is transferred there (as Company A is at that point part of Company B's controlled group). So, under my analysis, Employee X gets service credit under both 401k plans for all of his service post-acquisition, but only under the Company B 401k plan for his service pre-acquisition. And then, turning to my Question 2, I think this distinction goes away once (if) you merge the Company B 401k plan into the Company A 401k plan, as that then brings his additional service credit under the Company B 401k plan into the Company A 401k plan. Is this the incorrect way to view this? Is my analysis implausible? If so, I am not understanding why? Link to comment Share on other sites More sharing options...
Brian4 Posted May 24, 2017 Share Posted May 24, 2017 From question 2, for Company B's 401(k) plan after the transaction the merged company is the sponsor of this plan. Treasury Regulation 1.411(a)-5 and IRC section 414(a) addresses vesting credit for predecessor employers. Under these the service with Company B prior to the transaction would be recognized. Link to comment Share on other sites More sharing options...
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