ADP Testing

[Guest cease]

Here are the specifics to the best of knowledge. Can you help?

"A" company maintains a 401(k) plan with a calendar plan year

"A" company acquires "B" company in a 100% stock purchase on 09/30.

"B" company maintains a 401(k) plan.

"A" company directly transfers assets of "B" company to the "A" company 401(k) on 10/01.

For ADP testing purposes, how are "B" company employees treated:

1. For the period 01/01 - 09/30

2. For the period 10/01 - 12/31

I know that there is a plan termination section on the message board, but there doesn't seem to be the same amount of activity. If any additional information is needed, please let me know. I greatly appreciate any responses. Thanks

[david rigby]

Just for clarity

- Do both plans use a calendar plan year?

- The reference to "transfer assets" is a bit troubling. Does that mean that the plans were merged on 10/01?

[Guest cease]

The answers to both of your questions is yes. Plan years are both calendar year. Asset transfer means that the "B" plan was merged into the "A" plan.

I used the word direct transfer to illustrate the fact that the "A" company is accepting the transfer of assets and liabilities of the "B" plan.

[Guest cease]

Correction to the question below - I just learned more information and now I need to ask different questions:

Company "A" becomes a stand alone company on 09/30/02 when Company "X" spins off company "A". Employees in company "A" particpated in company "X" 401(k) plan.

Company "A" established a 401(k) plan on 10/01/02 and are running a short plan year 10/01/02 - 12/31/02.

Also on 09/30/02, company "A" acquired company "B" through a 100% stock purchase. Prior to 09/30/02, company "B" maintained a 401(k) plan and merged assets into company "A" 401(k) on 10/01/02.

As of 10/01/02, company "A" plan participants are those that participated in company "X" and company "B" plans. Assets were directly transferred and all participants were 100% vested. Company "A" plan document recognizes these merged plans. Company "A" plan uses prior year NHCE ADP for testing.

Am I right to assume the following?

1. That Plan "A" is a successor plan and is not eligible for "first plan year" treatment (i.e. 3% NHCE rule)?

2. To determine the ADP of NHCEs for SPY 10/01/02 - 12/31/02, take the weighted average of NHCEs ADP from predecessor plans (would this be for period 01/01/02 - 09/30/02, or 10/01/01 - 09/30/02)?

3. To determine HCE for SPY 10/01/02 - 12/31/02, look at compensation earned from 10/01/01 - 09/30/02 for those employees that are in company "A" plan as of 10/01/02?

Again, I this is all the information I have. Thank you form your patience as I try to get the questions out.