Two plans, now union breaks up

[John Feldt ERPA CPC QPA]

An employer has two calendar year 401(k) plans, one for the union employees (UEEs), one for everyone else. The union was going to break up. Before they did, the union plan (UEE plan) was amended with an effective date that begins August 1, 2010 - the same date that the union no longer exists. That amendment allowed the same employees, now non-union, to continue to participate in the plan.

The other 401(k) plan is a safe harbor 401(k) plan.

1. Can the plans be aggregated for coverage (for periods after 7/31/2010)?

2. Can they be aggregated for non-discrmination?

3. Would the 410(b)(6)C) exception apply? (I don't think so)

[Tom Poje]

1.401(k)-1(b)(4)(iii)(B) last sentence says you may NOT aggregate a plan using the ADP safe harbor provisions of section 401(k)(12) and another plan using the ADP test of section 401(k)(3).

you briefly reference 410(b) the section dealing with mergers and acquistions.

but this wasn't either, this was a group switching from union to nonunion.

the good news (I suppose) is the IRS envisions other possibilities such as the one you indicate.

1.401(k)-5 is entitled Special Rules for mergers, acquistions and similar events. note, they have added 'similar events'.

unfortunately this section of the regs simply says "Reserved" - so they haven't decided how to handle.

irregardless, you've only been able to use the similar provision under 410(b) for coverage and not nondiscrim, so I don't see how that can help in regards to the ADP test.

[John Feldt ERPA CPC QPA]

Yes, we could not find a way to solve that problem. The safe harbor is a 3% nonelective.

We looked at 410(b)(6)© which mentions a person ceasing to be a member of a group in (b), ©, (m), or (o) of Code Section 414. 414(o) says that the Secretary shall prescribe regulations to prevent the avoidance of any employee benefit requirement in (m)(4) or (n)(3) through the use of other arrangements. So, even if regulations had been written there, it would also be of no help.

Ironically, the former union employees are actually receiving slightly higher benefits in that plan (UEE plan) than the regular company plan.

We plan to aggregate to show coverage passes under 410(b), but for nondiscrimination, is there a way to file with the IRS to say, here's the issue, and we think it works if we just do this: Run ADP/ACP testing anyway (combining the plans (it will pass) and run a combined 401(a)(4) test for the non-SH nonelectives (it will pass) and then provide a 3% of pay QNEC to the NHCEs in the formerly union plan?