WCC Posted January 8, 2019 Share Posted January 8, 2019 Hello, Company A purchases Company B in a stock purchase. Company A sponsors a non safe harbor plan, Company B sponsors a safe harbor 3% non elective (both calendar year plans). Purchase transaction has closed and Company B did not terminate its plan beforehand. I have reviewed Notice 2016-16 and understand there is limited guidance on mergers when safe harbor plans are involved. However, I have a bit of a twist: 1.401(k)-3(g) and 1.401(m)-3(h) provide guidance on a suspension of a safe harbor contribution mid year. Let's say Company B's plan complies with all these requirements to remove the 3% safe harbor mid year. I don't believe they can be merged mid year because Company B's plan needs to be tested for the entire plan year (1.401(k)-3(g)(ii)E and 1.401(m)-3(h)(ii)E). Can the plans merge mid year after the removal of the safe harbor contribution? Could they be merged but then tested in separate groups? Thank you Link to comment Share on other sites More sharing options...
Kevin C Posted January 14, 2019 Share Posted January 14, 2019 There is no guidance (formal or informal) on mergers with a safe harbor plan. The IRS reserved a section in the 401(k) regs for it, but never did anything. With no guidance, the best you can do is follow a reasonable, good faith interpretation of the code and existing guidance. If Plan B is merged into Plan A during 2019, won't that result in a short final plan year for Plan B that ends on the merger date? So, wouldn't the merger be at the end of the final plan year for Plan B, instead of mid-year? You didn't say how recently the transaction occurred. 1.401(k)-3(e)(4)(ii) provides a way for a plan to remain safe harbor for a short final year if the termination is in connection with a 410(b)(6)(C) transaction. Link to comment Share on other sites More sharing options...
WCC Posted January 14, 2019 Author Share Posted January 14, 2019 2 hours ago, Kevin C said: You didn't say how recently the transaction occurred. Thanks for the reply. The transaction closed Q4 2018. I appreciate your thoughts. Thank you Link to comment Share on other sites More sharing options...
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