A buys 80% of B - what happens to 401(k) plans?

[M Norton]

Company A buys 80% of Company B, effective 10/1/2019; Company B's owner retains 20% ownership of B.

Both companies sponsor calendar year 401(k) plans, but B's employer contribution is not as generous as A.

After Company A buys 80% of B, they become a controlled group.

Can A and B continue to maintain separate 401(k) plans with different ER contributions?

Do they have to be tested together or can they be tested separately?

If they have to be tested together, when must that begin?

Thanks for any help!

[Luke Bailey]

If you don't change the eligibility/participation and meet the other requirements of 410(b)(6)(C), you should be able to test separately through end of 2020. You can always have separate plans, but after 2020 would need to separately pass 410(b) on basis of aggregate data.

[M Norton]

Thanks, Luke!

Does it matter that the discretionary ER contribution amounts are not the same for the two plans?

[Bill Presson]

1 hour ago, M Norton said:

Thanks, Luke!

Does it matter that the discretionary ER contribution amounts are not the same for the two plans?

Not until after 2020. Then they can still maintain separate plans as long as they pass coverage. If they are large enough, they might consider QSLOB treatment. Or they could merge the plans.

[Luke Bailey]

What he said.

[Bill Presson]

1 hour ago, Luke Bailey said:

What he said.

Thank you, sir.