Merger Cross-Tested

[Guest JimD]

Client with cross tested 401(k) 12/31 plan year acquired a company on 10/1 with a 401(k) 12/31 plan year. Both plans will continue through 12/31/03. Using the coverage transition rule under 410(b)(6) each plan passes coverage for 2003. The ADP and ACP tests for each plan will be completed using only the participants under each plan. I also understand that for the 401(a)(4) rate group testing that the employees of the acquired employer can be disregarded for 2002. Correct? Thank you for your response.

[Mike Preston]

2002 or 2003? In any event, I believe that to be incorrect. The plans are given a free pass as to 410(b). If the plan designs are safe-harbors as defined under 401(a)(4), then you are done. However, if they are not safe-harbors, I don't think the general test under 401(a)(4) has the same sort of transition period that 410(b) does.