BentoBox

Agreed. Thank you. The change in vesting schedule would apply only to nonelective contributions made solely under the terms of Plan B (and only w/r/t certain participating companies in Plan B). I dont think we have to preserve Plan A's immediate vesting for contributions made solely under the terms of Plan B. Let me know if you disagree.

I think this is a no-brainer; but wanted to get other's thoughts. Plan A's base plan doc uses a 190 HOS as an equivalency and is merging with and into Plan B, which credits HOS on an hour for hour basis. Plan A will merge into Plan B effective Jan 1 and both use calendar year computation periods. Under Plan A's adoption agreement, all contributions made under Plan A were immediately fully vested and all Plan A participants were immediately eligible upon hire. Plan B provides for a non-elective contribution for certain participating employers with graduated vesting schedules (but former participants in Plan A will not be employed by one of those participating employers as of the date of merger). In the event that a former Plan A participant becomes eligible for a nonelective contribution under Plan B after the merger, I see no reason why Plan B cannot credit vesting service HOS on an hour for hour basis (even though Plan A would have used a 190 HOS equivalency). To me this is a no-brainer - but wanted to see if others agree; because, well, the service crediting rules are complicated and I'm not that smart. Thank you for reading.

Thank you CuseFanz! I'm getting to the same conclusion - make sure that at least 95% of the participants in the termd plan who are still active at least have a balance/accrued benefit in the replacement plan - but they need not be actively deferring. I agree with your comments on the match - but we will be contributing the surplus to fund match after the deferral elections to which the match relates have already been made (and the service has already been provided. Some of the QRP rules seem hyperfocused on form over substance.

Working with a client who has a small excess in a term'd DB plan and wants to use the excess for matching contributions under the client's existing 401k plan. The 401k plan provides for immediate eligibility for FT and PT employees with autoenrollment. We have assumed, therefore, that the replacement plan will satisfy the 95% rule b/c all of the active employees who participated in the DB plan would be immediately eligible for 401k plan with an auto-election and would have had to affirmatively opt-out. But do folks actually go through the plan rosters and count the number of active former DB participants who are active prtcpts in the replacement plan? (These are big plans and counting would be somewhat manual). Second, can anyone point to guidance on who constitutes an "active participant" in a replacement plan? Is it mere eligibility or does the active participant have to have a balance? Third, I realize that there are restrictions in the PLRs on using the excess for match. But I'm pretty comfortable that if the excess is applied to match earned in the previous payroll period w/r/t previously made elective contributions, we should satisfy the match rules. Any thoughts?

Just my two cents. I would first confirm if the distribution actually went to the incorrect beneficiaries; because the suggestion that a portion of the benefit goes to the son and a portion to the granddaughter sounds a little unusual. I would check the terms of the 401k plan document to confirm who the benes are in the absence of a bene designation. Is it the estate; or are there identified individuals to be treated as benes in the plan document (e.g., children, grandchildren, siblings, etc)? If the beneficiary truly is the estate (which is typical), you would acquire the estate documents from the estate administrator and, if the estate is still open, the amounts should have gone to the estate (if that was dictated by the terms of the plan document). It is possible that the estate is closed and the estate docs designated the son to get half and the granddaughter to get half. Before you go ahead and try to correct the distribution, I would first confirm who the correct beneficiaries are pursuant to the plan document and, if relevant, the estate documents.

Yes, that's exactly what I'm trying to confirm. In other deals, we have had employees contribute to the B SIMPLE IRA from their A compensation (and have set up a manual process in which the SIMPLE deferrals are withheld from A compensation and contributed to the SIMPLE IRA). Section 408(p)(10) provides that the only way an employer (meaning the entire controlled group) is permitted to maintain both a SIMPLE IRA and a 401k plan is if "the qualified salary reduction arrangement maintained by the employer would satisfy the requirements of this subsection after the transaction if the employer which maintained the arrangement before the transaction remained a separate employer." It's clear that if the seller continues as a sub and the employees continue their employment with seller post-close, seller would be required to have employees continue their deferrals. I guess it's not so clear, at least to me, that if the seller's employees come over to the buyer's payroll in connection with the transaction whether salary reduction contributions must continue to 12/31. Is this a grey area or am I being overly conservative?

Here's another hypothetical I've been thinking about: Company A sponsors a 401k plan and purchases 100% of the stock of Company B who maintains a SIMPLE IRA. All of Company B's employees terminate employment with Company B as of closing, are transferred to Company A, and became immediately eligible for Company A's 401k plan. Company A/B argued that the SIMPLE IRA "functionally terminated" as of closing because all of Company B's employees terminated employment with Company B. Company A/B did not allow the former participants to continue to make SIMPLE IRA contributions through 12/31 nor did Company A/B fund the remaining post-closing employer contributions through 12/31. Company A/B then terminated the SIMPLE IRA as of 12/31. I'm not so sure that this gels with 408(p)(10), the SIMPLE IRA M&A transition rule. By my read, 408(p)(10)(A)(ii) requires that Company B (regardless of whether it was merged into or continued as a wholly owned sub of Co. A) should have continued salary reduction and /er contributions to the SIMPLE IRA through 12/31. In other transactions I have worked in with the stock purchase scenario, we have allowed the former SIMPLE IRA participants to continue to make elective and employer contributions to the SIMPLE IRA post closing (even if they transferred employment to the acquiring entity in connection with the transaction). Any thoughts?

@EBECatty - Thank you for such a thorough response and flagging the ASG question, which I've been wondering about myself. This makes alot of sense.

I'd love some feedback on the following scenario to see if I'm thinking about this correctly. Company A (which maintains a 401k plan) and Company B (which maintains a SIMPLE IRA) intend to create a JV. Company A will hold less than 80% interest in the JV after the transaction. Company B's employees will be transferred to Company A in connection with the transaction and become employees of Company A. The intent is to offer Company A's 401k plan to the former employees of Company B (who participated in the SIMPLE IRA) immediately after close. Post-closing the SIMPLE IRA will continue to be maintained by the JV or Company B. I'd appreciate any thoughts on the following: Do you see any issue with offering former Company B's employees who become employees of Company A in connection with the transaction the ability to participate in Company A's 401k plan immediately after close? Post-closing Company A will not be in a controlled group of corporations that includes the JV or Company B. I'm assuming that the transaction will trigger a separation from service for former Company B's employees that come over to Company A. Will the entity that maintains the SIMPLE IRA (either Company B or the JV) have an obligation to fund elective deferrals and employer contributions through the end of the calendar year for the employees who terminate with Company B and transfer employment to Company A? If the JV/Company B do not have any employees post-closing would they be able to dissolve the SIMPLE IRA mid year? Thanks for any guidance you can provide. I'm not fluent in SIMPLE IRAs/408(p) and want to ensure I'm not missing something.

We would like to be able to rely on 408(p)(11) in the M&A context and argue that the Buyer's ongoing SH 401k plan that will replace the terminated IRA in the transition year is "established" w/r/t the target company as of the date of close (assuming the IRA is terminated the day of close) and therefore satisfies the rule. However, as noted by various comments above, the "established" language is making me cautious and in the absence of specific guidance from the IRS I'm hesitant to rely on this interpretation. Thanks all for the interesting commentary.

Thanks for your response Austin3515. I think the language limiting mid-year termination of a SIMPLE IRA "only if the employer establishes and maintains (as of the day after the termination date) a safe harbor plan to replace the terminated arrangement" is what is giving me pause. Congress chose to use "established and maintains" which to me requires the plan be established (that is, initially effective) the day after the IRA termination.

Has anyone considered whether this "replacement SH 401k plan" scenario can be used in the M&A context? Target maintains a SIMPLE IRA; Buyer maintains a SH 401K plan. If Target terminates the SIMPLE IRA as of close and then adopts the Buyer's SH 401k plan immediately after close, would the Buyer's SH 401k Plan be a plan that was established and maintained as of the date after the SIMPLE IRA termination date? Absent specific guidance, I'm inclined to say no because the IRS addresses SIMPLE IRAs in acquisitions in 408(b)(10) and decliend to clarify that the SH 401k replacement plan could be a Buyer's SH 401k plan. Thanks for any thoughts.

Is the new SECURE 2.0 requirement that allows employers to terminate a Simple IRA mid year but only if the employer “establishes and maintains (as of the day after the termination date)” a SH 401k plan to replace the terminated Simple IRA arrangement intended to cover M&A situations (where the SH 401k plan is maintained by Buyer and has been in existence long before the SIMPLE IRA)? Or does the employer need to initially “establish” the SH 401k plan as of the day after the SIMPLE IRA termination date to rely on this mid-year termination exception? Thanks. Apologies if this is addressed elsewhere on the Board.