Plan Mergers

[Guest Mary Snyder]

I know there is no specific guidance. However, if a company that has a Safe Harbor 401(k) Plan buys a company that has a regular 401(k), could the plans merge in the middle of the Plan Year (they both have calendar year plan years) and still remain Safe Harbor?

Thanks

[MWeddell]

It seems unlikely. In the 1998 enrolled actuaries meeting gray book, Q&A-23, the IRS did say that the 410(b)(6)© transition period concept also applies to 401(a)(4) and 401(k) discrimination testing. However, that transition period ends once the plan sponsor makes significant changes to the plan. There probably would be changes made to the acquired company's 401(k) plan to convert it to a safe harbor plan design, which would end the transition period.

If the transition period ends, then the house of cards is going to fall down. Having HCEs from the safe harbor plan participating in another plan in the controlled group won't work. If instead you try to aggregate the two plans for the whole plan year for testing purposes, that won't work either.

Wait until the end of the plan year, in my opinion.