merger question

[Earl]

I understand that there is a "grace period" when you can ignore the merger for coverage.

Would that also apply for the definition of Highly Compensated and Key Employees?

Thanks for any opinions

[JanetM]

Can you explain what you mean?

[Earl]

I just mean that although you don't have to aggregate for coverage, but do you have to worry about prior year information of other company for HCE status.

I am guessing no, but just questioning myself. I think it is only a 410(b) exemption so I was just wondering.

[JanetM]

Well if you bought a company and assumed a plan you pretend you have been sponsor all along. If you bought company (assets) hired all the employees as new employees and start new plan from scratch you don't have prior year to look back to.

Need a bit more detail. Are these HCEs in buyer plan? Are you giving credit for prior service?

[Earl]

This is a stock purchase of my client. The acquiring company will count all service once the plans merge. The buyer has HCEs, it is a large asset management company so lots of them.

I am betting (but don't know) that when the companies merge none of my clients EEs will be HCEs if they use the Top Paid Group election.

Thanks

[JanetM]

If buyer did stock purchase they also acquired the plan and will be treated as they have been plan sponsor all along. That means when you merge the aquired plan with buyers plan you have look back year and all those fun hoops to jump through. If person is HCE with the acquried company in 2008 and they make over $105K in 2008 they will be HCE in 2009 regardless which plan they are in normally. You mentioned the top paid group election, without actual census data that can't be answered by me. That depends on total number or HCEs and the exact comp for each one.

[Earl]

So not until they actually merge. Thanks

[ERISAnut]

So not until they actually merge. Thanks

Earl,

If I am reading your question correctly, you are asking if the HCE determination remains consistent during the TRANSITION PERIOD where one of the companies uses the Top Paid Election and the other doesn't.

If this is your question, then your suggested answer in your initial posts are correct. Each plan will continue to determine HCEs under their respective methods. The underlying purpose of the transition rules is to continue treating the plans as if they are plans of unrelated employers. This will remain true through the end of the transition period or until there is some significant change in coverage.

Is this what you are getting at?

[Earl]

yes it is.

So, not just exempt from coverage but completely separate for the transition period.

Thanks I appreciate your time responding.

[ERISAnut]

Correct. Each plan is continuing to operate as if the companies remain unrelated throughout the transition period. Each company will continue to identify their HCEs using their respective elections for Top Paid in order to do so. The reason the question never came up is that you cannot perform a coverage test without first identifying the HCEs; so that is considered a part of that coverage testing process.

[Guest Sieve]

Be careful, though, not to significantly amend any of the plans. Although they operate as if they are separate plans under Section 410(b) until the end of the plan year following the plan year of the merger/acquisition, they only continue to operate separately if they remain not significantly changed. Revising eligibility standards, for example, likely would immediately end the transition period exemption.