Deleting a Catch-Up Contribution Provision

[Guest Callan]

Our client Buyer just purchsed (stock sale) a company (Seller) who already amended their plan to allow for catch-ups. Buyer does not want to allow for catch-ups and none of their other Buyer plans (into which the newly-acquired Seller employees will be transferred) allow for catch-ups. Buyer and Seller are now a controlled group and it is my unerstanding that Buyer has until October to allow for catch-ups in all their plans since they are allowed in Seller's plan. Buyer wants to simply amend out the catch-up provision from Seller's plan before October. Does anyone see any problems with this, assuming some participants may already have reached their 402(g) limit for 2002 and are activley deferring the catch-up? When should we make the amendment effective? October 1 or December 31?

[Archimage]

Why does he want to get rid of the provision? It doesn't effect him either way.

[Guest Callan]

Because according to IRS Notice 2002-4, if one plan of an employer has a catch-up, all have to and bcs this is a controlled group, they are all considered as one employer. The Buyer doesn't want to have to deal with catch-ups at all and doesn't want to be forced to amend its plans to allow for them.

[mbozek]

Somewhat short sighted of the employer to not want catch ups. I thought that in the event of acqusition/dispositions the universal catch up is not required for the year of the acqusition and the following plan year under IRC 410(B)(6)©. The Seller can allow the catch up for 2002 plan year and delete it for the 2003 plan year.

[Guest Callan]

I think 410(B)(6)© only applies to the coverage requirements of Section 410(B), not the catch-up provisions under 414(v). Yes, I agree that it is short-sighted. I'm sure they will have us add it back in later.