Transition Period for Acqusitions

[Guest LoloV]

Following is the situation I'm looking at regarding newly acquired companies:

Owners of Company 1 (Owner A - 80.03%, Owner B - 19.97%) buy 4 new companies. In the end, each owner owns the same percentage in all 5 companies. Company 1 maintains a PS plan with a 09/30 plan year end.

Company 2 was purchased 12/2001; had an existing PS plan

Company 3 was purchased 06/2003; new PS plan adopted 10/04

Company 4 was purchased 03/2004; new PS plan adopted 11/04

Company 5 was purchased 06/2004; had an existing PS plan

Due to the transition period allowed for acquisitions is the following correct regarding the Company 1 coverage test?

09/30/04 PYE - include Company 2

09/30/05 PYE - include Companies 2 and 3

09/30/06 PYE - include Companies 2, 3, 4 and 5

I am somewhat confused if there is no coverage testing at all for the transition period or if coverage testing is still needed for the existing controlled group and only excluding the newly acquired company is allowed.

Any help would be appreciated. Thanks!

[JDuns]

The "old" controlled group and the new acquisition may be tested separately during the transition period ONLY if there are no changes to the coverage for either group.

In your example, for the 9/30/05 PYE, you would need to include 1,2,3 and 4 (assuming you maintain 4 separate plans). If you added 3 and 4 into 1's plan, you would also have to count 5's employees for the testing (since you would have changed 1's plan eligibility after the transaction).

[Guest LoloV]

In reviewing this further, it seem like no coverage testing is required at all. Since this this controlled group keeps adding companies does the transition period keep getting extended?

If this is true, it seems like no coverage test would be needed for any of the 5 plans until the 09/30/06 plan year.

One other point I'm trying to clarify is the adoption of new plans during the transition period...Say for example Company 5 was not purchased. Does the adoption of new plans by companies 3 and 4 knock this group out the the transition period "free pass" and would coverage testing be needed on the 4 plans for the 09/30/05 plan year end?

Each company maintains their own plan.

I hope this question makes sense. Thanks!

[JDuns]

The transition rule DOES NOT mean that no coverage testing is required during the transition period. It only means that the groups may be tested separately with each group ignoring the other side's employees.

The adoption of the new plans indeed ends the transition rule early requiring all of the employees of 1-4 to be counted for the 9/2005 tests.

[Guest LoloV]

Thank you very much for your replies. I read this info about 5 times and knew I was confusing myself.