Safe Harbor Plan and Merger

[Guest PatF]

I have a new challenge that I need help with. Have a safe Harbor Plan that is a March year end. It will be merging with another group of plans as a controlled group. This plan is a December year end and is not a safe harbor plan.

What do I need to worry about with the merger?

Thanks for your help

Pat

PS they are putting in the 3% to meet the Safe Harbor

[Guest Midas]

If the intent is to maintain the Safe Harbor plan separately and not merge plans, things to think about...

-amending the Safe Harbor plan to exclude employees from other employers in the control goup PRIOR to becoming part of the controlled group.

-IRC 410(b)(6)© transition period provides a pass on coverage until the end of the plan year following the plan year in which the business transaction (merger) occurred.

-coverage must be passed separately after the transition period.

-if coverage fails, permissive aggregation not an option while plans have different plan years.

-if plan year end is amended to match the plan year end of the other plan in the controlled group and permissive aggregation is an option to assist with failing coverage, aggregation may jeopardize the safe harbor status as all plans being aggregated must satisfy the Safe Harbor requirements as a single plan.

[Guest PatF]

Thanks for the answer. I think the intent is to merge and get rid of the Safe Harbor portion. This is a group of 15-20 companies that are part of a controlled group. (80% common ownership) Some of the companies are over 100 participants and they want to simply things and have one plan and one audit to pay for.

I didn't think that they could pass some of the tests is one of the small companies of the group had a safe harbor plan and the others didn't.

The weird think is the different year ends and trying to make sure that I don't miss something as we don't do as many "weird" situations as some of you might come accross.

Just looking for a heads up on what I need to watch for merging these plans.

Pat

[JanetM]

Notify participants in advance that the plan will be terminating and merging with another plan. You will have to pass ADP/ACP test for short plan year.

[david rigby]

...the plan will be terminating and merging with another plan

Perhaps this was intended to mean terminating or merging?

Difficult to do both.

[Guest Midas]

PatF - Your question is a bit too vague, there are too many things to list here that will need to be analyzed when merging plan. If all you are worried about is the different plan year-ends, that should not be a problem. You can merge two plans that have different plan year-ends. If your intent is to merge, instead of terminate, the cleaner way would be to amend the plan being merged to the same plan year end as the receiving plan. Then make the merge effective on the first day of the new plan year. This would eliminate some compliance testing issues that come up with plans that merge mid-year. Terminating the plan would elimate the anti-cutback analysis and vestng issues that arise when merging plans.

Also, if merging, the SH NEC, if required (not sure what kind of notice you sent, wait-and-see or fixed?) would still be required on compenation up to the point of merger. The final regs offers some relief on remaining a safe harbor during a short plan year due to business transaction.

If interested, I have attached a link to a Plan Merge Chart by Mckay Hochman...

http://www.mhco.com/Document%20Amendments/...er%20Chart.html

[Guest PatF]

Thanks for your help.

Also question. They are going to "name" the Controlled Group. Am I better restating one of the existing plans and then merging into that plan or starting a new plan for the Group and then merging all of the plans into that plan. The New "grouP" will have a separate EIN number and will be like a holding company.

Just want some ideas to kick around and some pros and cons. I appreciate any help.

Thanks