Search the Community

Good afternoon to all, Our client, a P.A. we will call Company A, sponsors an active 401(k) plan. Very soon (like in 2 weeks), Company B is buying Company A. Company B, not currently our client, sponsors an active SIMPLE IRA plan. Company A will continue to exist and pay salaries to its owners out of receivables through 12/31. The staff of Company A will be paid by Company B from 08/15/2018 forward. The owners of Company A will continue to make deferrals out of their salaries but the employees of A will no longer have any mechanism for making deferrals to A's plan. Company A, in a perfect world, would have liked for Company B to assume sponsorship of Company A's existing 401(k) plan, open it up to all of Company B's employees, and move forward with as little disturbance as possible. However, we are pretty sure that Company B can't have a SIMPLE IRA and assume sponsorship of a 401(k) plan in the same year. Company A's next preference would be to have Company B take over the existing 401(k) plan as of January 1, 2019. This leaves the employees of Company A without a way to make deferrals from 08/15 through 12/31 since they have no pay coming from Company A anymore after 08/15. Is that permissible, to just suspend their ability to make deferrals and then have them be able to once again on January 1? Has a partial plan termination been triggered by the change of how the employees get paid as of 08/15/2018? If it matters, most of the employees of A will still be employed, by B, as of 08/15/2018, but not necessarily in the same jobs they had before. It should be noted that at this moment we do not know (and neither does our client) whether this subject is addressed in the buyout agreement and we do not know the wishes of Company B. Any advice on the correct way to handle this will be greatly appreciated! Thanks in advance.

FACTS: ABC is an S-Corp owned 100% by Mr. A ABC sponsors a Safe Harbor 401k (Cross Tested) Profit Sharing Plan: 2 HCEs are elig 10 NHCEs are elig ABC 401kPSP excludes employees of Affiliated Employers who have not adopted the Plan; Eligibility is 1 Year of Service with 1000 hours (no min age); Years of Service with Affiliated Employers are counted for plan purposes Maryland LLC is a multimember LLC taxed as a partnership 5% membership interest: Mr A 95% membership interest: Partnership Z (2 partners, both of whom are unrelated to Mr. A) At 1/1/2016 the membership interest changed when Partnership Z wanted to close down. In response to this, Mr A acquired 90% of the partnership's interest via an assignment of interest Mrs A (Mr A's wife) acquired 5% of the partnership's interest via an assignment of interest As a result of this change in LLC membership , Maryland LLC and ABC Corp are now under common control as of 1/1/2016 Mr. A hired an outside person (unrelated) to manage the day to day LLC operations as he simply does not have the time to do it. There are 5 LLC employees (all NHCEs), 3 of whom are very very part time (never 1000 hours), the other 2, John and Jane, may or may not work 1000 hours in a year for LLC however they are also employed by ABC Corp and have had at least 1000 hours credited per year with ABC Corp. These 2 employees are 2 of the 10 NHCE Participants in the ABC Plan. They both receive 2 separate W2s -- 1 for ABC Corp, 1 for LLC QUESTIONS: How do the 2 "shared" employees, John and Jane, count in the 410b test? Assuming the 3 very part time employees of LLC never have 1000 hours, they will never meet eligibility for 410b testing, BUT, the 2 shared employees, John and Jane, have >12mos, 1000 hours and are eligible for the ABC Corp plan (i.e. they are active participants), yet excluded as far as their LLC employment is concerned. So would the NHC coverage be 10/12 essentially counting them as 1 person each in the numerator but counting them as 2 people each in the denominator (1 as ABC ee, 1 as LLC ee)?? I realize it will pass either way, but next year the LLC #s may increase. Mr. A and his wife are eligible for the ABC Plan, yet assuming they have compensation from the LLC, that portion of their work/compensation is excluded from the plan. How does question #1 apply to them? Does the LLC compensation that is excluded for allocation purposes have to be tested for reasonableness, to prove the exclusion is not discriminatory? or does the LLC compensation have to be included for allocation purposes, i.e. added to their ABC Corp compensation for allocation purposes (SH, TH Min, PS)? Presuming the LLC Compensation is excludable, is 401(a)(4) testing done only with respect to ABC Corp compensation? or is the LLC compensation added in for Avg Ben, Rate Group testing purposes? Thank you!