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merger of SH plan after the 3% is removed?


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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

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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. 

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