KJJ-TPA

We have a client "Company A" who sponsors a 401(k) plan and recently purchased another business "Company B" via stock-sale late in 2023. Company B also sponsors a plan and that plan was not terminated prior to the close of the sale. The plans can't be merged mid-year, so we were planning on merging the two plans for 2025 and relying on the transition relief period through 12/31/2024. We were just told that Company A signed on as Plan Sponsor of Company B's 401(k) plan, has moved all of Company B's employees onto Company A's payroll, and still has those same employees participating (deferring and receiving match) in Company B's plan. What do we do here? My first thought would be that the employees who were moved to Company A's payroll would also move to Company A's 401(k) plan, but it's confused by the fact that Company A is now the Plan Sponsor on both plans. Did they knock themselves out of transition relief? If so, do they need to do a corrective amendment for the "carveout" of employees still participating in Company B's plan and now they need to pass coverage? Gotta love being the last to know with M&A

Thank you both!

We have a situation where a client has a new safe harbor match plan "001" with a 1/1/22 effective date with a bundled provider. They will be moving from the original service provider to our firm and. in order to meet their objectives, we will be setting up a profit sharing only plan (cross tested/new comp) and then merging the plans effective 1/1/23. They would like to setup the new profit sharing plan, with a retroactive effective date of 1/1/21. I'm wondering if anyone sees any issues with the new plan, eff. 1/1/21, being plan 002 even though it has an earlier effective date than plan 001? We'll be skipping the 2021 5500 filing for this plan and the first 5500 filing will be for the second plan year (2022).

Thanks Lou!

Can 402(g) catch-up from the previous calendar year be used in the calculation of 415 annual additions maximum for the plan year? Example for a PYE 3/31/2021 401(k) deferral amounts for Participant X: - 1/1/2020-3/31/2020 = $5,200 - 4/1/2020-12/31/2020 = $15,600 - Total 2020 calendar deferrals = $20,800 In PYE 3/31/2020 - $5,200 of the 2020 402(g) catchup was used to allow for a Participant X's annual additions of $62,200 ($57,000 + $5,200). - This should mean $1,300 ($6,500 - $5,200) is still available for 402(g) catch-up, for the 2020 calendar year - The question is regarding the use of this $1,300. Deferrals 1/1/21-3/31/21 = $6,200 – using as 415 catch up Would the maximum annual additions for the PYE 2021 be $65,500 ($58,000+$6,200+$1,300) ? OR would the maximum annual additions for the PYE 2021 be $64,200 ($58,000+$6,200)? Thanks!

Perfect! Thanks Kevin!

I consulted with an ERISA attorney and they confirmed there isn't a cutback issue as long as there is 30 days notice for the participants. They recommended the current owner run a short payroll through the termination/close date (as EBECatty mentioned in their comment). In this case, the 30-day notice won't be possible, since the employer won't be announcing the company sale until the contract is signed and the ownership will be transferring within a week following the signing. The current owner sought a second opinion and consulted with an ERISA attorney through the M&A law firm how is handling the sale. This second attorney believes there isn't an issue with the less-than-30-day notice in this case. They commented that it's common in cases like this (safe harbor plan with a stock sale) to give a notice as soon as the contract is signed, provide participants with the details on their options for adjusting their deferral amounts for a short payroll period (through the plan termination date) and continue to fund the safe harbor match on deferrals up to the plan termination date. Thanks again to all of you who took the time to help!

Yes, thanks for catching that! The plan termination date should be 11/15/2020. I just updated the original post.

I don't think so. I re-read the post, but I could be missing something...

I have a client who is being purchased by another entity, effective 11/16/2020. As these things usually go, we were just notified a couple days ago ? The seller (our client) sponsors a 401(k) safe harbor match plan. The buyer has required that the existing plan be terminated, prior to the effective date of the sale. Accordingly, the plan has an 11/15/2020 termination date. Our client runs monthly payrolls at the end of each month; the last payroll was 10/31/2020 and the next payroll date would be 11/30/2020. My question is this - Is there any accrued benefit cutback issue with employees not being able to make deferrals and receive safe harbor matching contributions on the first two weeks of November? Or, is there no issue since the payroll date for that period of work falls on the other side of the sale/termination date? Does it make sense that the benefit isn't considered accrued until the payroll date? If so, I would assume it would follow the same logic as a plan who ends the safe harbor provision 12/31/2020 and then processes a payroll with a January 2, 2021 payroll date (without safe harbor). I just don't feel confident applying that logic to a plan termination without a rule to tie it to.