When must acquired employees enter 401(k) plan after merger?

[Alonzo]

The "eligible employees" who would have joined the acquired plan have to be permitted to join the merged plan. See IRC 414(a)(1).

[Guest JB2]

One company acquires the assets or stock of another company. Both the acquired and acquiring companies have 401(k) plans. The acquired companies employees have been participants in their plan prior to the acquisition.

The two plans are merged. I understand that service must be granted in the merged plan for service with prior plan.

Can those employees from the acquired company that meet the eligibility / participation requirements of the merged plan on the date of the merger be required to wait until the next entry date of the plan or must they enter the plan immediately?

Can the transition rule of 410(B)(6)© be applied so that they can continue participation?

[Richard Anderson]

414(a) requires service with the aquired plan's employer to be recognized as service after the merger of plans. But, I believe that does not necessarily mean that all participants in the acquired plan must also immediately participate in the merged plan.

Assume the acquired plan had immediate entry and the merged plan requires a YOS. If an employee of the acquired plan's sponsor was hired one month before the merger, I believe that the merged plan could require a YOS before participation. 414(a) requires service to be granted for the prior employer, but it does not require that participants in the acquired plan automatically become participants in the merged plan.

The question of whether someone has to be allowed immediate entry or next entry date arises when someone has already exceeded the maximum 410(a) statutory time. An example is someone from the acquired group who would have met the entry requirements of the merged plan as of 10/11/95 (he has a hire date of 10/11/94). Per 410(a) this employee must enter the plan by the earlier of the 1st day of the next plan year or six months after meeting eligibility. Therefore, the 410(a) statutory latest time this employee may enter the plan is 1/1/96. I believe the code may require this employee to enter the merged plan immediately. I don't know of any exceptions to 410(a).

[Guest JAREL]

To add my opinion, I believe the merged plan, to the extent eligibility is different than the acquired employer's plan, would be treated as a change in eligibility requirement (an amendment applied to employees of the acquired employees); which I feel would require any employee of the acquired employer who has satisfied the requirements for eligibility in the acquired employers plan as of the date of the merger, to participate as of the next entry date.