Time-Sensitive "Negative Election" Question

[Übernerd]

This is a new one on me. Any ideas much appreciated.

Newco buys Oldco's facilities and will employ a large percentage of Oldco's employees. Newco will set up a 401(k) plan, but because of time pressure it would rather not draft an actual document until after the closing date (the time pressure is significant and unavoidable). Instead, Newco proposes to establish a trust and to simply "carry over" employee salary deferral elections--made under Oldco's 401(k) plan--to Newco's "planless" 401(k). Newco would then draft a plan document before the end of the plan year; but, for significant period, employee money would be contributed to the trust without a plan document.

This makes me a little nervous. § 401(k) and the regs all presume a plan document; but is one required before a qualified cash-or-deferred election can take place? I know people rely sometimes on a "general rule" that you're OK if you get a plan document in place before the end of the first plan year--is there any support for that? If so, does it apply to cash or deferred elections?

[Guest qualified plan]

You need a 401(k) plan document in place before a deferral election can happen.

This can be the Oldco plan document (meaning Newco assumes Oldco's plan) or a Newco document, but you need a document.

[Übernerd]

You need a 401(k) plan document in place before a deferral election can happen.

This can be the Oldco plan document (meaning you assume their plan) or a Newco document, but you need a document.

That's my feeling, as well, but I'm getting pushback. Is it just the presumption in the statutory language ("under a plan," and so on), or is there clear authority requiring a document before a valid deferral? BTW, Newco isn't assuming or cloning Oldco's plan (and can't, under the circumstances).

[Guest qualified plan]

I can't give you a cite right now, but I believe the rationale is as follows:

A participant is required to make a valid cash-or-deferred election prior to the time that compensation is earned, and the participant can't make a valid cash-or-deferred election without a plan document being in place at that time.

Can anyone else provide a cite?

[Übernerd]

Thanks for the responses. You're referring, I think, to IRS Reg. § 1.401(k)-1(a)(3)(iii)(B), which says that the contribution under a CODA can't precede the election. Unfortunately, that doesn't get me to an ironclad requirement that there be a plan document before that election (I'm convinced, but it's not me that needs convincing).

[Guest seissler]

The cite is 1.401(k)-1(a)(3)(iii)A - the paragraph above your cite.

[Übernerd]

The cite is 1.401(k)-1(a)(3)(iii)A - the paragraph above your cite.

Yeah, that's the right citation, sorry. That paragraph says that you can't make an election before the later of the date the employer adopts the CODA or the date it's effective. I wasn't reading that as an ironclad requirement that the plan had to be in writing before the first deferral (though I think that's what it means).