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mid-year merger of 401(k) plans-comp?


EGB
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Two 401(k) plans (Plan A and Plan B)are being merged effective November 1, 1999. Both plans have a calendar year plan year. Further, each plan contains a different definition of compensation (for purposes of testing and benefits). Effective November 1, 1999, both plans will use Plan A's definition of compensation. Is this OK? What implications does this have on elective deferrals, 401(k) and (m) testing, etc.? Obviously, it would be easier to have the merger effective on January 1, 2000, but that is not an option. Any help would be greatly appreciated.

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  • 3 weeks later...
Guest bswift

Beth, you are not alone in the woods. The issue of testing in the year of the merger or other acquisition is high on the IRS's list of priorities for guidance. Which means that as of now there really is none. My general rule in the absence of guidance is to use a rule of reason. If the two plans are merged and you have to test the plans combined at the end of the year, it makes sense to me to test using the surviving plan's terms. That may create some extra admin work, but that might be what I'd do. hope that helps

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