Contributions after assuming a merged employer's plan mid-Plan Year.

[KJohnson]

After a merger, the suviving corporation retains the plans of the "disappearing" corporation. The merger occurs in the middle of a Plan Year. Under the Plan, the match, the 401(a) contribution and the contribution to a separate money purchase plan is made only for those employed at the end of the Plan Year. The disappearing corporation must have a "stub" year for tax purposes ending with the date of the merger.

Do you include deferrals and compensation prior to the merger in calculating the year end contributions? Since the disappearing corporation has already had a "stub" tax year for periods covered by the Plan Year how do you calculate the 404 limits?

[david rigby]

Normally, the tax year is not the relevant issue in dermining the ER contribution and match for the plan year.

[KJohnson]

But what about for 404 purposes? If you match on the pre and post merger deferrals and make the dc contribution on both the pre and post merger compensation you may well have 404 problems if you are only looking at the post merger compensation of these employees for deductibility purposes.