Merging SH Plan with Non SH Plan

[TPA Bob]

Have two unrelated entities that are merging into a new entity (a type A or C reorg, accountants working out details).  They wish to also merge their respective retirement plans.  Both calendar year plans.  Plan A is a safe harbor 3% QNEC, Plan B is not safe harbor and has a matching contribution.

They wish to merge the Plans asap (during the year) with the new merge entity accepting sponsorship of the merged plans.  And want the merge plan to be safe harbor 3%.

I am trying to find guidance on how to handle - can we treat the merged plan as new and adopt SH provisions, do we have to wait until 2019, etc.  Any thoughts would be greatly appreciated.

Thanks.

[Kevin C]

There is no formal or informal guidance available on merging safe harbor plans.  The safest approach is to merge them at the end of the year.   

 

There is, however, some guidance on changing eligibility requirements mid-year in a safe harbor plan.  Notice 2016-16 says that you can amend mid-year to restrict eligibility, but only for those who are not already participants.  My thought on that is that if you can amend mid-year to keep people from coming into the plan after the amendment, you should also be able to amend mid-year to allow additional people to enter the plan.  We have informal guidance (question 37 at the 2012 ASPPA Annual Conference DC Q&A session) that you can amend a safe harbor plan mid-year to allow additional people to enter the plan as long as it doesn't adversely affect those already in the plan.  The example was a SH plan covering only salaried employees being amended mid-year to allow hourly employees to participate.

If Plan B didn't exist, I think it would be easier to justify amending mid-year to include the former Company B employees in SH Plan A.  With your current situation, it comes down to what you think a reasonable good faith interpretation of the existing rules allows.  Ask 4 TPAs and you'll likely get 5 different answers.  Or, you can avoid it by waiting until the end of the year.

[QP_Guy]

Along with Kevin's thoughts i'd add to keep your eye on the real goal.  Is the goal to merge plans or is the goal to have a single set of employees under  a single plan.  That may sound parsed, but Kevin's solution and other like solutions depend on keeping the real goal in focus.

[AKconsult]

I would strongly push for merging at the end of the plan year.  If the plans are merged mid-year, how do you handle the testing?  There is not good guidance on how to run nondiscrimination tests when 2 plans are separate for part of the year, then merged for part of the year.  Particularly in an instance where one  is safe harbor.

OR, I am wondering if it would be possible to freeze the non-safe harbor plan as of the merger date, amend the safe harbor plan A  to count service for the Employer B employees so that they can possibly enter Plan A immediately at the time of merger.  Then at year-end prepare a formal resolution to merge the frozen Plan B into Plan A.  That way the plans are separate for the entire year, but the employer gets the benefit of all employees being under the safe harbor plan as of the merger.

Just a thought ..

[TPA Bob]

Thanks for the thoughts.  Meetings this weekend to discuss.