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I have not read all of the above, so may have misunderstood the question, but I think this issue has come up in this bulletin board several times with no definitive answer. The weight of authority seems to be that the acquirer can't ignore the service, because it was with a constituent entity (i.e., whether the acquired company is maintained as a sub or is merged into acquirer should get you same answer). Derrin Watson's "Who's the Employer" advocates this position, I believe. Others have pointed out that they received determination letters that say that service of controlled group members is only counted for the period during which the controlled group existed.

I believe this may be one where you can self correct by retroactively amending to allow for two loans. EPCRS has very limited SCP correction availability for loans, but I believe this may be one of them.

I got this from reg 1.401(a)(4)-2... (2) Safe harbor for plans with uniform allocation formula—(i) General rule. A defined contribution plan satisfies the safe harbor in this paragraph (b)(2) for a plan year if the plan allocates all amounts taken into account under paragraph (c)(2)(ii) of this section for the plan year under an allocation formula that allocates to each employee the same percentage of plan year compensation, the same dollar amount, or the same dollar amount for each uniform unit of service (not to exceed one week) performed by the employee during the plan year. So your allocation should be OK. Maybe there's testing options/parameters in your software such that the general test passes? Since the allocation is a safe harbor formula, general test is not required. In fact, a uniform percentage of compensation often fails the general test. For safe harbor allocation formulas, we never include general test results (we don't even look at the general test in such cases, actually).

i hate to be a pain in the rear on this, but this is really technical legal stuff that has to do with the structure of the transaction, as well as the language of the Plan. Someone needs to evaluate the transaction paperwork to identify what really happened in the transaction and then determine how the plan is affected. This should not be determined through a discussion peppered with assumptions. Just sayin' ....