2 plans merging, what to do with ADP test?

[Guest lindamichals]

2 401k plans, common ownership, always administered separately, 2 tax returns. Client informs me the smaller company will be merged into main corp in March, 06. Both plans use prior year testing. When I test the main corp plan end of 2006, how is the adp test affected when 2 plans merge? I understand I have to terminate the small plan and potentially, not all participants will roll their account to the main corp plan.

Thank you!

Linda Michals

[Tom Poje]

Linda -

it should just be the weighted average, not the sum of the two parts.

in other words, not (ADP plan 1 plus ADP plan 2)/2

but rather

(Sum of all ADP % plan 1 plus sum of all ADP % plan 2)/ (# of partic plan 1 + # of partic plan 2)

[rcline46]

If the companies are a controlled group now, merge the plans as of 1/1/06. See the regs for rules on using prior year testing. I would combine the 2005 tests to do it. And I hope under these conditions that each company is a valid 410(b) group.

If they are not currently a controlled group you will have to test the disappearing plan up to merger date.