Plan Merger - Differing Availability Rules for Withdrawals of Employer Contributions

[rocknrolls2]

Company A bought Company G. Each has a 401(k) plan and G's plan is merging into A's plan. Under A's plan, employer matching contributions are available for withdrawal by employees prior to age 59 1/2 only to the extent that such contributions were either in the plan for at least 24 months or the employee had participated in the plan for at least 60 months. If such an employee obtains a withdrawal, his/her employer matching contributions are suspended for 6 months after the withdrawal. Prior to attaining age 59 1/2, an employee in Company G's plan may not obtain any in-service withdrawals of employer matching contributions. On or after attaining age 59 1/2, an employee in Company A's plan may obtain an in-service withdrawal of employer matching contributions under the same conditions as applied prior to attaining age 59 1/2, including being subject to a 6-month suspension period following the withdrawal. Under G's plan, an employee who has attained age 59 1/2 may obtain an in-service withdrawal of employer matching contributions without restriction and without being subject to a suspension period.

I know that the anti-cutback rules generally apply to optional forms of distribution under merged plans. However, I am also aware that the employer has the right to eliminate optional forms of distribution by amendment if the participant has a right to elect an otherwise available single sum distribution. As applied to in-service withdrawals, that refers to an optional form of distribution in an amount elected by an actively employed participants subject to the satisfaction of certain plan designated conditions. Thus, it would appear that A cannot amend out the G withdrawal availability conditions. Applying these rules, are the following options available to A:

(1) Amend the plan to provide that participants with employer match transferred from G's plan are subject to the same distribution restrictions that applied under G's plan;

(2) Amend the plan to retain the post-59 1/2 withdrawal availability provisions regarding the G plan matching contributions while subjecting the pre-59 1/2 withdrawals of G plan matching contributions to the more generous A plan availability conditions.

[Guest Sieve]

You are correct that these in-service distribution optional forms of payment are protected--i.e., you cannot cutback on those forms of benefit to the extent they have been accrued. Therefore, you certainly can amend the Plan in either manner you suggest. It would seem to me, however, that the 2nd suggested approach would give employees the best of all worlds--i.e., you'd use the most favorable pre-59-1/2 & post-59-1/2 distribution options and apply them going forward to all $$ (even "old" $$)--and I think that would be much easier to administer. Otherwise, with your first suggestion, you'd have to track Plan A & Plan G pre-merger accounts separately forever.