Control Group merge into one company. Is this scenario ok?

[K-t-F]

Companies A and B are a controlled group.  Both had their own plans... both exactly the same design (hey, they wanted 2 separate plans).   I was handling the 2 plans up to the point where ADP stepped in with a bigger better way to handle everything.  My services were terminated.  This all occurred December 2020.  I pressed to let me finish 2020 and let ADP take over first of the year nice and fresh.  I was told that was not necessary that ADP would handle the 2020 Form 5500 (in writing).  

Come to find out they terminated Company A's plan and rolled it into company B's plan.  All assets liquidated and transferred.  Thing is.... Company A's plan was not whole.   They moved the money even though the SH Match wasn't deposited.   Is that ok?  Since A's plan merged with B's, can B's plan accept the receivable SH Match?  It is a control group situation.  

Thanks

[Bill Presson]

Odds are pretty good that it was done wrong. But it's not your problem anymore.

[Riley Britton]

Yes,  I agree- not your problem.  Why worry about it?  

[K-t-F]

Well...  the financial advisor is asking me to jump in and help get the 5500 filed.  The client didn't leave me due to my work, it was all about the ADP platform and supposed ease it brings for the employees to manage their accounts.... and for the sponsor to make deferral deposits.  I would like to be thought of in a good light should more potential clients come down the pike by the advisor.  A small TPA like myself... not a bad strategy

16 hours ago, K-t-F said:

Company A's plan was not whole.   They moved the money even though the SH Match wasn't deposited.   Is that ok?  Since A's plan merged with B's, can B's plan accept the receivable SH Match?

All that said, is there an issue?  At this point it's all water  under the bridge.  

[John Feldt ERPA CPC QPA]

The merger agreement probably addresses this such that the surviving plan can accept any contribution receivables for the plan that merged in.

[Bill Presson]

1 hour ago, John Feldt ERPA CPC QPA said:

The merger agreement probably addresses this such that the surviving plan can accept any contribution receivables for the plan that merged in.

You're a very optimistic man, John.

[Bird]

18 hours ago, K-t-F said:

Come to find out they terminated Company A's plan and rolled it into company B's plan.  All assets liquidated and transferred.  Thing is.... Company A's plan was not whole.   They moved the money even though the SH Match wasn't deposited.   Is that ok?  Since A's plan merged with B's, can B's plan accept the receivable SH Match?  It is a control group situation. 

Was it terminated (and presumably balances voluntarily moved to plan B) or was it merged?  Your description has a contradiction in it.

If it was merged then I'd say no doubt Plan B can accept the contribution.  If it was terminated then the proper thing to do would be to re-open the plan and give everyone the option of what to do with their (new) money.  (Not speaking to other potential issues if it was terminated.)  Although practically it probably makes sense to just deposit the contribution to Plan B, but definitely make that someone else's liability/problem by explaining that it isn't "right."

[shERPA]

You should clarify your role with the former client as it may affect the advice you provide.   Do they want you to look at everything, soup to nuts?  Review the plan "termination", the "merger" or transfer, the receivable issue and anything else related?   To give proper advice you should tell them this is what you need to do and what it will cost.

OTOH, if they are just asking you if they can deposit the receivable to the surviving plan without reviewing anything else, you should caveat your response that it is not based on a complete review of the situation and might not be correct.  That said, can they do it?  Probably, as Bird notes, under a merger it should be OK, but even if it was terminated and transferred, under the principles of self correction it's probably good enough (but IRS could take a different view under exam).  There may be some make-up earnings due as well, but unless they want to engage you to figure out if so and how much, i'd just point this out.   And presumably Company A adopted the surviving plan?   As Bill says there's a good chance something was done wrong, you can be helpful, but just be clear on the limitations of your assistance. 

[K-t-F]

Great help.. thanks!   I will clarify merger or termination with them.  If they are ambiguous I will press for merger.  Merger actually makes sense.   All of this happened after my time with the plan.  I honestly am in the dark.  

Plan merger... if a plan merger do 1099-Rs need to be prepared?  It is my understanding that everyone rolled their accounts to the surviving plan.     

AND.. if a 1099-R is required do I only put on the form what was actually rolled over, what came out of the investment accounts and transferred into new accounts established by the surviving plan? or do I include what should have gone over had the plan been fully funded prior to the merger (hard assets transferred + SH Match receivables?)

 

[BG5150]

If it was merged, there were no distributions, so no 1099-Rs.

If it was actually terminated, the employees should have had the option to roll it over to plan B.  If so, then 1099-Rs should have been issued.

Be sure to bill UP FRONT for any work you do for them.  Make it known you are doing the work as a courtesy and this is ad hoc work, not subject to your previous service agreement.

If it is on ADP's platform in 2020, why isn't ADP preparing the 5500?

But, hold on, what did the disengagement letter say?  Was the plan terminated and moved before you got the letter? (Who did the plan term/merger  paperwork for plan A?

[Bird]

1 hour ago, K-t-F said:

Great help.. thanks!   I will clarify merger or termination with them.  If they are ambiguous I will press for merger.  Merger actually makes sense.   All of this happened after my time with the plan.  I honestly am in the dark.  

It's not a question of how it should be, it's a question of what actually happened.

[K-t-F]

UPDATE:

1st, I agreed to help out.. got a check up front.  What you think is a good amount for you is never enough.

The plan sponsor terminated, the plan terminated and the participants rolled their account balances into the plan of the new business.  All that happened November 2020.

I have discovered that the 2020 SH contribution was not paid to the plan prior to the rollover but rather to the new sponsor's plan.  If it was a merger situation I would think no problem.  But a termination situation... problem?

- Is it water over the dam? 
- 1099-Rs representing the rollovers need to include the SH deposits.  Right?

A mess... 

[John Feldt ERPA CPC QPA]

On 8/10/2021 at 8:26 AM, Bill Presson said:

You're a very optimistic man, John.

Well, it was nice while it lasted anyway!

Since it was terminated, not merged, the safe harbor match remains as a receivable contribution for that old plan. They don’t get out of that obligation by terminating. Perhaps they have ERISA counsel telling them otherwise, that they can contribute the old plan’s obligation into the new employer’s plan even though the plans did not merge. Optimistic thinking again, I suppose.

[Bird]

If I were in your shoes I'd probably throw up my hands and say it's FUBAR'd and they can either cross their fingers and hope it's not reviewed, or hope they could explain to an auditor that the end result is what would have happened if they documentation had been done properly, as a merger.  That's not to say there isn't some potential disastrous, or at least really bad, consequences, such as a careful auditor insisting that the SH contribution by the new company isn't that at all; it is profit sharing or whatever, and the old company still owes the SH.  

Fixing the 1099-Rs would be down on my worry list.

I'd think the "best" actual fix would be to retroactively change it to a merger instead of a termination.  I don't really know if that can be done through VCP.  Just make it abundantly clear that ADP screwed it up, and royally, and should pay for the fixes and/or assume responsibility for future problems.

[K-t-F]

That old saying is SO true, you can lead a horse to water .....  I am authoring an email to the financial advisor and found I needed to take a break... I was venting too much.  It is FUBAR and it didn't need to be if she and the client had heeded my advice.  I suggested way back then (11/2020) to just let me finish up 2020.  Nope, ADP was going to do it all. 

I am going to call it a merger and if the plan is reviewed let them deal with it.  That said, when 2 companies merge and each has a plan one plan goes away...  why have 2 administrations right?  These 2 plans were identical... both plain old SH Match designs. 

- If company B merged with company A on/around 11/2020 then company B is taking over responsiblity for Plan A's outstanding 2020 contributions (SH Match receivables).  They took over the company and all it's obligations.  Right?
- And if Plan A's assets were rolled over to Plan B on 12/15/2020 (that's when the rollovers occurred) then Plan A's SH Match obligation should be paid by company B into Plan B. 

Probably not how it should have all gone down but Plan A's participants are entitled to get a match.   

My questions are....

• is/can I say that Plan A is terminated on 12/15/2020 when it's balance was reduced to $0? Make the 2020 Form 5500 the final one?
• Prepare a 2020 1099-R showing only what was rolled over?

 

Thanks
 

 

 

 

[Bird]

If you're calling it a merger then 2020 would be the final plan year, and no 1099-Rs are needed.  There is a Q on the 5500 about transfers and liabilities to/from another plan, and as I recall you have to reference that plan (EIN and plan number) so in theory that should be coordinated with the other plan's reporting. 

I forgot that they are asking you to do the 5500...it's pretty offensive that you are being called back to bail them out.  I might cave in and do the same thing but at the very least I think you want to get ADP involved and find out exactly how they get the idea that they can come in and "terminate" a plan and not take on any reaponsibility for the final filings.  If you totally clean up their mess the client and broker will not appreciate what you've done.

[K-t-F]

I am cleaning up the client's mess.  IDK what ADP's official role except that they are taking over the plan.  The financial advisor is the one who informed me that ADP was originally taking care of the 2020 form 5500.  I've been paid in advance, I've included my cost to prepare 1099-Rs so if they are not needed then I made a little more for my trouble.  

Thanks to anyone who chimed in.  As a small TPA I keep things very simple.  I think the advisor thought what she was doing would help but did not think about the behind the scenes stuff that a TPA does to keep a plan out of trouble.