Funding of Merged Plans

[Guest Ray Corneau]

A client of mine currently has two distinct 401(k) Plans that are part of the same control group. They made a decision to terminate Plan X and merge it into Plan Y as of 1/1/2003. From a recordkeeping standpoint, it is not administratively possible to have the plans merged by that date. From a document standpoint, that date is no problem. Is there a probelm with the client continuing to send in participant deferrals to Plan X until it is possible to merge the two plans from a recordkeeping standpoint? Plan X and Plan Y have the same exact features, just a different plan name. The document, as I mentioned will be updated, the recordkeeping system will be the only "lag." Any insight would be helpful! Thanks!

[Brian Gallagher]

[david rigby]

"terminate" or "merge"

These are not the same thing. Which is it?

[E as in ERISA]

In order for the merger to be effective as of that date, both the plan and the trust documents should be properly amended to reflect the merger. If the trustee of Plan Y legally has control of the former Plan X assets as of the effective date, it may not matter where the contributions are sent. (But you need to confirm with legal counsel that this will work. Sometimes a new institutional trustee will be wary about what responsibility it has for assets that are not in its custody. It will not want deposits to go to the old trustee's custody). But why do they want to do this anyway? If they continue to make deposits, won't they be interfering with the recordkeepers ability to finalize the records for Plan X and therefore won't they be further delaying the transfer process?

[Brian Gallagher]

i believe that boh plans are currently at ray's company, and the newly merged plan will be there also.

i'm guessing that if the testing and reporting are done correctly, it really won't matter that the assets are held in the "old" plan. the money will move over "into" the new plan.