Testing Issues - Multiple to Single Employer Plan

[SRM]

Company A and Company B are unrelated (not members a controlled or affiliated service group) but are both participating employers in a calendar year 401(k) Plan. Since this plan is a multiple employer plan separate ADP tests have been prepared for each company in prior years.

Company A will be acquiring Company B during 2004.

Questions:

Is the 410(b)(6)© transition period available in this situation? Can separate ADP tests be performed for each company for 2004 and 2005? Or does the fact that this is a single plan and not separate plans for each company preclude the use of the transition period?

The closest analogy that I have considered is a situation where two unrelated employers sponsor separate plans with the plans merging on the date of the transaction. In that situation, I do not believe that the transition period is available and the adp testing for the merged plan for year of the transaction must consider employees of both employers (for at least the portion of the year after the transaction).

[alanm]

I think you can use the Transition rule because they are regarded as two separate employers and two separate plans for testing in the multiple employer plan format. Do no merge the plans though, that brings up other issues; maintain them as is for the transition period and then merge them.

[SRM]

Thank you for the response.

I am a little confused by the last part of your message regarding not merging the plans and perhaps the last part of my message was misleading.

The situation is a multiple employer plan (with a single asset pool available to pay all benefits) will become a single employer plan at some date in 2004.

Can the plan continue with separate ADP tests for each employer through the end of the transition period or must the plan have a only single ADP test as of the date of the transaction?

[alanm]

Sorry for the confusion. The two companies should be maintained as separate plans within the multiple employer plan trust to be tested individually. Don't transfer the data of one employer into the plan of the acquiring employer on the system. Continue to operate both plans as is prior to the buyout. After the transition period, directly transfer the census and balance information on the system, into the one surviving worksite plan. No physical transfer of assets occurs, just the participant demographic data and balances. A board resolution should be generated stating that you intend to operate the two plans as is under the transition rule and that on a date in the future the plan of the acquired employer will revoke participation in the multiple employer plan and all balances, in name only, will transfer with no distributions allowed.