Merging 2 safe harbor plans mid-year

[Guest FAQ]

This was in the M&A forum, though I've reposted here as well:

"QUOTE (Rider @ Feb 15 2011, 02:52 PM)

Plan 1 has a safe harbor match of 100% on 1st 4%.

Plan 2 has a safe harbor match of 100% on first 3%, plus 50% on next 2%.

They want to merge plan 1 in to plan 2 mid-year.

Seems to me they may have to wait until the end of the year or it will invoke testing?"

I have the same issue, in an M&A situation. In my case Plan 1 has a match of 100% on 1st 5%. Surviving plan would have the richer match.

IRS stated that amendments to safe harbor plans to add Roth and hardship withdrawals are allowed, but no more. I have also seen that IRS representatives have said that a safe harbor and non-safe harbor plan cannot merge mid-year lest the safe harbor be affected.

However, I've seen nothing regarding merging two safe harbor plans mid-year. If you have two safe harbor plans pre-merger and a safe harbor plan post-merger, with no reductions in benefit levels, then what's the beef? If it's not allowed, then the primary impact in this case would be that those in the less rich plan will have to wait longer to get the richer match.

Has anyone seen any informal commentary on merging two safe harbor plans? Thanks in advance.

[Tom Poje]

1.401(k)-5 Special Rules for mergers, acquisitions and similar events

oh, it's blank. there are no guidelines.

if you weren't merging the plans you can't aggregate them because of 1.401(k)-1(b)(4)(iii)(B)

plans with inconsistent testsing methods...

may not aggregate a plan using the safe harbor provision and another plan that is using the ADP test, (or a plan that uses current year testing with a plan that uses prior year testing)

I think, perhaps (???) you follow 1.401(k)-3(e)(3) Change of plan year and create a short plan year for both plans(?) e.g. 1/1 - 7/30

and then another short year 8/1-12/31

this seems to be possible under (3)(ii) which seems to say you could have 2 short plans year back to bak. it says you satisfy things for the immediate following plan year (or for the immediately following 12 months if the immediately following plan year is less than 12 months)