Multiple Employer Plan to Single Employer Plan

[justatester]

Here is the situation:

Company A owns 50% of Company B. Both Company A & B participate under one plan as a multiple ER plan. Effective 1/1/2008, Company A buys the remaining 50% of Company B, therefore creating a single employer plan. Company B is now a participating employer.

When they were a multiple ER plan, all testing was done separate. For 2008, how should the testing be handled? I am thinking, it would be one test, since in theory, the assets "merged" together effective 1/1/2008. The employers would not be able to utilize the transition rule and continue to due ALL testing separate for 2008 and 2009. Of course, they continue to have different levels of benefits for match (BRF test) and Profit Sharing (General Test).

[Guest Sieve]

They are now members of a controlled group, and still have a Participation Agreement by which one employer participates in the Plan of the other. Why wouldn't the transational rule apply for purposes of Section 410(b), and, thus, Section 401(a)(4) & ADP/ACP, etc.?

[justatester]

I was thinking since the plan was amended to change from a multiple to single employer that would be considered a significant change thus the transition rule would be out.

I was also thinking that if the plans had been separate and had merged assets as of 1/1/08 there would be no transition rule. Since everyone is under one plan document and assets are under one trust, wouldn't that same theory apply?

[Guest Sieve]

That may be the case, but none of that--merging of assets or moving to single-employer plan--was due to physical change of the plan. The single-employer plan resulted from the controlled group transaction, with nothing else--likewise, I guess, as to plan assets. So I think you have an argument that the transition rule applies.

Of course, separating the plans prior to the transaction would have been helpful. But, I'd suggest that the transaction that produced the controlled group was not followed by any voluntary action to revise/amend/merge the plans. The transition rule applies "if there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition." (Treas. Reg. Section 1.410(b)-2(f). Emphasis added.)

Does anone know what Tripodi says?