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Plan Merger (Safe Harbor)


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Company A has a 401k plan (A Plan) with no safe harbor feature. Company B has a Safe Harbor 401k plan (B Plan).

Company A purchases (stock purchase) Company B on July 15th, 2021.

Company A wishes to get rid of Plan B either through merger or termination.

Termination:

1. If they terminate Plan B are the actively employed participants of Plan B required to roll the money into Plan A?

2. Would the rollover have to be accounted for as the original sources (401k, SH, etc.) or would all the money be considered related rollover?

3. Is Company A required to make Safe Harbor contributions based on compensation earned until July 15, or the date of plan termination?

 

Merger:

1. Would the rollover have to be accounted for as the original sources (401k, SH, etc.) or would all the money be considered related rollover?

2. Is Company A required to make Safe Harbor contributions based on compensation earned until July 15, or the date of plan termination?

 

Is there a benefit or requirement that Plan B be terminated or merged?

 

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They must merge. The successor plan rule prevents company A (which is now the sponsor of two plans) from terminating the B plan while continuing to maintain the A plan. If company B had terminated their plan before the merger, it would not have been an issue, but it is now too late.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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They bought the stock so Plan B is now a plan of Company A with all its history and Company A now has two 401(k) Plans at the same time.

To have allowed distributions to Participants in Plan B the Plan would have needed to be terminated prior to to the sale on July 15.

Typically you need to make safe harbor contribution up to 30 days after you notice participants but you may qualify for a shorter period as part of bonified business transaction.

 

 

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