merging safe harbor 401k with non-safe harbor 401k

[Santo Gold]

The link below mostly addressed a question, but I was hoping for further clarity:

Company A sponsors Plan A and has a match safe harbor 401(k) plan. Company B is unrelated and sponsors Plan B which is a 401k but not a safe harbor.

Company A buys Company B and wants to merge B's non safe harbor plan into A's safe harbor plan in mid year (7/1).

From what I've read and linked to, this cannot be done without Plan A losing its 2007 safe harbor status. Is that correct? If so, does the employer still have to make the safe harbor contribution even though it is not a safe harbor (I would assume so since it is in the document)?

One suggested alternative was to freeze Plan B as of 6/30, allow B's employees to participate in Plan A as of 7/1, and merge Plan B into Plan A on 1/1/08. Plan A would remain a safe harbor at all times. Do you agree with all of this?

Thanks very much.

http://benefitslink.com/boards/index.php?s...c=32952&hl=

[Tom Poje]

I would agree the plans could not be merged w/o losing safe harbor status for the current year.

Would also agree the match has to be made because the document says a match will be made.

as for freezing plan B and letting people enter 7/1 - no clue.

[david rigby]

possibly simpler?

- Leave both plans alone, and merge at EOY.

- Amend B to include the investment options of A, but not the SH, so that the operation of B will be similar to the operation of A.

Never look for trouble.

[Guest NYU]

I just had this exact question come up, and I'm wondering where I can find authority (regulations?) for the proposition that k Plan A would lose its safe harbor status if merged with a non-safe harbor k plan?

[Guest fender5150]

It may be good to test the plan and see the extent of the problem. There's a chance that your HCEs will be okay even with a Non-Safe harbor plan.

If the Non-Safe harbor plan is using the prior year method, you can run your test now; and get a good idea what things are going to look like for the rest of the year. If the plan's using the Current-Year Method, check with your Administrator to see if you can change to the prior year method.

With a prior year test - Your ADP and ACP limits (and your HCE) are based on the prior year - for a 2007 test. limits are based on 2006. It's a much more predictable testing tool.

Check out this site. www.401ktest.com

It's a very user-friendly site, and It won't cost an arm and a leg to run multiple tests.

Fender5150

PS: Why do people use the current year method anyway?

In my opinion - this is why many plans use the current year method: In the first year of a 401k plan, HCE's can get a much higher contribution limit using the current year method. But this difference flattens out after a couple years.