Acquisition with no plan

[Zoey]

Company A is purchasing Company B (both Dental offices).

Company A has a 401(k) Plan. Company B doesn't. Company A plans on keeping the employees of company B only temporarily (until they can find other jobs)...about 6 months. Can Company A make use of their eligibility requirements for those employees of Company B? In other words, do they have to take into account the time with Company B or can they make them wait 1 year to be eligible for the plan?

I know it seems like a silly question, but I am somehow second guessing myself.

Thanks for all your help.

[austin3515]

If you bought the stock of the company, just don't have the new company added as an adopting employer. You have the 410(b)(6)© grace period under which you do not have to pass coverage (runs through last day of the plan year following year of acquisition). If you're using a standardized adoption agreement, inclusion of these people will be automatic based on the boiler-plate language, so that could pose a problem for you.

If you bought the assets of the company, as long as you don't elect to include service with the prior entity, then yes, they would be subject to the plan's eligiblity just like any other new hire would be.

[Zoey]

Thanks so much!

It's a non-standardized plan. I knew we could exclude, but would be subject to coverage and I was afraid they would fail. I wasn't aware of the grace period. That's awesome!

And that's exactly the answer I was hoping for (that they would be treated like new hires).

[austin3515]

So I assume your client bought the stock of Company B? The grace period wouldn't apply to an asset purchase, because they would just be regular old new hires subject to your regular eligbility. I suppose you could exclude company B's employees as a class exclusion, and still be eligible for 410(b)(6)© grace period, but you should double check on that.