switching employees between common ownership plans

[Guest lindamichals]

I administer two separate plans that are sponsored by two employers with common ownership. Currently, the plans are tested separately. Some employees are switching employers. My question is:

If switch is made mid year, do I test the employee in each plan? Example:

John Doe worked for ABC Co. Jan-Jun, 2005. Earned wages 35,000; 2,000 401k

Then in July 1, he switches employment to 123 Co. to the end of the year(12/31). Total wages earned here: $35,000; 4,000 401k

It seems logical to me I should enter in the plan's census the wages/401k according to the above example and test accordingly. Any problems with service rules? I feel an amendment is appropriate at this point that allows for predeccessor service in both plans. Any other issues? Thanks.

Linda Michals

[RCK]

I can't provide a cite, but I can tell you that we do what you suggest. The participant ends up in two tests, with the earnings and contributions made to each plan.

You do have to make sure that each plan defines vesting and eligibility service to cover both employers. You have to be sure that the 402(g) limit is applied correctly--you can't let them go to the limit in each plan. And you can't allow a distribution from the first plan just because the participant is not in that plan any more. Do you want to do automatic plan to plan transfers of existing acocunt balances? You have to be sure to handle vesting and forfeitures correctly.

RCK

[Guest lindamichals]

RCK,

Those were my thoughts exactly, their assets would be automatic plan to plan transfers. Both plans are set up identically in regards to vesting and eligibility. So are you saying if a plan transfer occurs, the participant has to leave his "unvested portion" in the plan he's leaving? I'm not clear on that point. Also, do you agree that language should be in both plans that allows for predeccessor service? Thanks.

Linda

[RCK]

Linda,

Yes, each plan has to be clear that service elsewhere in the controlled group has to be counted for eligibility and vesting.

Our plans are structured so that when Jane Doe goes from Plan A to Plan B, her account automatically moves with her. Her Plan A account keeps the original vesting schedule and if she terminates less than 100% vested, the forfeiture goes back to Plan A.

Given how hideous this make the plan language, I'm assuming that it has to be done this way.

Disclaimer: I work for a large plan sponsor, and four of our plans are on the same platform. Plan to plan transfers are automatic between plans on this plateform, but not into or out of this platform to our other plans.

RCK

[Guest lindamichals]

RCK,

I'm still a bit confused on the forfeiture. Once Jane Doe is working for Plan B and is receiving a match from Plan B and if she terminates less than 100%, then why wouldn't a least a portion of her Plan B match forfeiture stay with Plan B?

Linda

[RCK]

Linda,

Sorry--if she terminates less than 100% vested, the nonvested protion of her Plan A account goes back to plan A, and the nonvested portion of her Plan B account stays in Plan B.

RCK