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RatherBeGolfing

410(b)(6) Transition Rule question

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A client is the majority owner of Company A and a minority owner of Company B. He will acquire majority ownership of Company B in January of 2019.  The ownership will be enough to establish an A+B controlled group.

Company A maintains a small plan with a safe harbor match and A21+1YOS for eligibility, Company B maintains a large (audited) plan with a non safe harbor match and A21+3MOS for eligibility.   We are working on a new plan design to fit the needs of both A and B, but we don't have a clear solution yet.  Neither company has adopted the plan of the other company.  B's plan would probably pass coverage no problem with A's employees not benefiting, but A would fail miserably.

We can rely on the transition rule until we have a solution and then make the solution effective 1/1/2020 right? 

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Transition rule allows you to treat as separate employers for year of transaction and following year, so you would have through 2020 if desired. However, neither plan can be amended to change coverage or, if I remember correctly, benefits, otherwise you lose "protection". IMPORTANT - double check both plan documents prior to the transaction closing to make sure neither automatically covers all the employees of the control group.

Also, if B becomes part of A rather than remain a separate company, you'll want to make sure A's plan has language that will exclude former employees of B that are now employees of A.

I think most pre-approved plans have built in provisions to cover both of the above scenarios, but you should check, obviously, to make sure.

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Thanks CuseFan.  Neither document will automatically cover the employees of the other company of the controlled group.

I don't know why I was second guessing myself this morning, so thank you for clarifying it for me.

 

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