EGB

Two 401(k) plans (Plan A and Plan B)are being merged effective November 1, 1999. Both plans have a calendar year plan year. Further, each plan contains a different definition of compensation (for purposes of testing and benefits). Effective November 1, 1999, both plans will use Plan A's definition of compensation. Is this OK? What implications does this have on elective deferrals, 401(k) and (m) testing, etc.? Obviously, it would be easier to have the merger effective on January 1, 2000, but that is not an option. Any help would be greatly appreciated.

Does nayone have the PLR cite handy?

See Rev. Proc. 98-22 and 99-31.

Thanks for your comments Bernardin. I am not sure why the 414(s) regs only apply to defined benefit plans; I cannot think of any good reason for the distinction. Has anyone actually used prior employer compensation in the context of a DC plan? Has anyone taken the position that it is a continuation of the same employer such that the compensation can be recognized? Any additional comments would be greatly appreciated.

I have a client that recently, through a stock acquisition, acquired another company. The client maintains a MP plan and the employees of the acquired company ("acquired employees") began participating in the plan on September 1, 1999 (effective date of acquisition). The plan year is Jan. 1 to Dec. 31. In determining the amount of the contribution due to the acquired employees under the plan, the client wants to use the compensation paid to that employee for the entire calendar year (which would include compensation paid to the employee from its former employer that my client acquired) rather than using compensation from the date of participation. I understand that if an employee is employed by the same employer (or within the controlled group) for the entire plan year but only participated in the plan for a portion of the plan year, the plan can state that compensation for the entire plan year will be used rather than from the date of participation. My thought is that you can only use the compensation actually paid by the employer (or the employer's controlled group)and that commpensation paid by the acquired company to the acquired employees prior to the date of the acquisition cannot be considered. Any thoughts? Thanks in advance for any comments.

I agree with JMLSON. See IRS Field Directive released November 22, 1994 (21 BPR 2221).

I have a client that wants to handle large influxes of business by entering into an agreement with a temp agency to use the temp's employees until the the influx has been handled and to thereafter no longer use the temp employees. The influxes are sporadic and the temps are needed for varying periods of time. When the temps are working for the client, the client has full control over what the temp does each day and what hours the temp works. The client wants to amend its 401(k) plan to exclude these temps from participation. I understand the IRS Field Directive which states that part-time/seasonal employees cannot be excluded if they achieve 1,000 hours. Could these individuals potentially be excluded for the following reasons: First, an argument could be made that they are really the employees of the temp agency. I know that there are many factors that go into making a determination of whether an individual is an employee and that there are no clear answers. I also understand that you should do your best to make the individuals employees of the temp agency (e.g., have an agreement that states the agency is the employer, responsible for benefits, hiring, firing, etc). Second, even if they are the client's employees, could they be excluded as a reasonable classification without violating Section 410(a) (as explained in the Field Directive), the argument being that you are not excluding them because of their length of service, but rather because you only needed them for a particular influx of work or project? I am uncomfortable with excluding them. However, I would like to know what others are doing with this situation. The client feels strongly about excluding them because they tend not to defer into the 401(k) which hurts its 401(k) and (m) testing. I assume that this is a very common situation. I just wanted to see what other companies are doing and how typical is it to exclude these types of individuals.

As an addition to MoJo's comment, the plan will have spousal consent requirements if it contains joint and survivor annuities. If the plan contains only lump sums and/or installments, spousal consent should not be needed unless the plan specifically contains such a requirement.

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