Transfer of ees who change status

[ESOP Guy]

Company A has two plans. Plan one is for union employees. Plan two is for non-union employees.

During the year people move from union status to non-union status. The company’s record keeper is moving the account balance for these people from plan one to plan two.

Can they do this, or are they kicking people out of a plan against the rules? (Assume there are people with a balance >$5,000) Also, note both plans still exist so this isn’t a plan merger.

What about a former union employee who has terminated and for reasons unknown is moved from plan one to plan two. This seems less like to be ok.

Not sure at this point if the plans are the same in terms of provisions. But for now assume they keep track of the BRF like vesting on the moved amounts. (It is a firm audit client and the audit group is wondering about this.)

Does anyone have a hard cite for one way or the other?

[ETA Consulting LLC]

I wouldn't do it. There's mandatory disaggregation for union vs. non-union that may have implications. With that said, you are still only moving the account balance and not testing union compensation and contributions during the year in a non-union plan (or vice versa). A major point of contention would be how do the mandatory disaggregation rules play out within the top-heavy test (which rely on account balances). I'm too lazy to look it up right now, but if the mandatory disaggregation continues to apply the top heavy, then the transfer of the balance would improperly affect the top heavy test.

Just adding a little conjecture...

Good Luck!

[david rigby]

Q1. What response does the recordkeeper give when presented with the question, "Why are you doing this?"

Q2. What does the plan say?

(OK, maybe you should reverse the order of those questions.)