How do you calculating annual additions while merging plans?

[stephen]

Company A sponsors an ESOP with match and a 401(k) Plan. Plan Year End 3/31.

Company B sponsors 401(k) plan with a match. Plan Year End 12/31.

Company A bought Company B 1/1/00. Company B employees employed 12/31/99 were allowed into the ESOP as of 1/1/00.

The plans are being merged 1/1/02. This merger creates a short plan year for Company B employees and their 401(k) plan for 3/31/02.

What can be done for the Company B 401(k) annual additions testing? The deferrals, match, and compensation will all be from the period 1/1/02-3/31/02. Whereas the ESOP contribution will be based on 12 months of compensation (4/1/01 - 3/31/02).

If the test is calculated in this manner participants could fail the annual additions test with just their ESOP contribution. (10% of $170,000 = $17,000 which exceeds the $10,000 maximum under the short plan year.)

Is there a way to work this situation? Can Company B set the limitation year for the 401(k) Plan to the 12 month period? Are there other options?

[Tom Poje]

I think, therefore I am a fool....

my guess would be as follows:

there is a lot more going on than you may think!learn something new everyday!

You said, 'For allocation purposes you have the short year on B, so contributions to B get limited.' Actually, I am not sure if you really have a short year! See 5.15 of ERISA Outline Book 2001 edition.

The termination of the plan does NOT end the limitation year for 415 purposes, so a short period is not created merely because the plan has terminated. If allocations are made in the year the plan terminated, the normal section 415 limits applies to the allocation.

then it goes on to say that even if the final allocation is 'as of' a particular date, that is merely the allocation date in a 12 month limitation period.

Then it goes on to say that what could create a short year is when the final distribution of assets occurs. if on November 30 then you have created 11 month year. so it looks like the issue really depends on when the assets are actually moved/merged.

all that aside,

my understandong for 415 purposes, you consider the limitation years of all plans involved . Thus you still have 12 months of comp to consider from the period 4/1 - 3/31. and therefore shouldnt have a problem anyway.