Plan entry of employees when Predecessor Employer Service is counted.

[Guest Sara H]

If an employer counts predecessor employer service when acquiring employees of a newly purchased company, do they enter the plan immediately or do they enter the plan on the next entry date?

[Guest Sara H]

Does anybody have any advice on this?? I'd appreciate any help.

[david rigby]

What do you want the answer to be?

I have seen many transactions where the acquired employees' prior service is used for vesting and eligibility only. But, this might depend on prior policies, whether the acquired entity has a plan, whether the acquisition is assets or stock, etc.

In the case of a 401(k) plan, these employees could enter immediately, on the next entry date, or on a special entry date (such as first of next month) created just for them. Lots of variation, and it may depend on what is negotiated in the transaction.

Practicality may be important. Choose a method that everyone will understand, and that will make doing the ADP testing easiest.

Is this any help?

[RCK]

As always, I agree with pax. We have done transactions many different ways.

But if you are looking for a more definitive answer: We tend to bring participants in immediately if they were eligible for a predecessor plan, and make them wait for an entry date if they weren't eligible yet, or the predecessor employer did not have a plan.

Don't overlook the purchase agreement as a source of information--no telling what someone has already committed you to.