Transferred Assets Rule Under EPCRS

[J. Bringhurst]

Just curious as to how to interpret the Transferred Asset Rule under Section 12.07 of Rev. Proc. 2008-50 with respect to the transferred assets of multiple plans merged at the same time in connection with the same corporate transaction.

Section 12.07 provides, in applicable part, that:

If the submission involves a plan with Transferred Assets and no new incidents of the failure occurred after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, the Plan Sponsor may calculate the number of plan participants based on the Form 5500 information that would have been filed by the Plan Sponsor for the plan year that includes the employer transaction if the Transferred Assets were maintained as a separate plan.

We have a situation in which four small plans were acquired in connection with a corporate acquisition and were then merged with and into the client's much larger plan at the same time. The four plans each had operational failures that we have submitted under VCP. The issue at hand is whether the fee should be based on (1) the aggregated participant count of each of the merged four plans or (2) the fee that would have otherwise applied separately to each of the merged plans prior to the merger.

(1)

Plan A - 19 participants

Plan B - 181 participants

Plan C - 123 participants

Plan D - 25 participants

Fee based on aggregate participant count - 348 participants = $5,000 fee

(2)

Plan A - 19 participants - $750 fee

Plan B - 181 participants - $5,000 fee

Plan C - 123 participants - $5,000 fee

Plan D - 25 participants - $1,000 fee

Fee based on each plan's participant cound - $11,750

If anyone has an answer and can provide any official guidance that is on point, that would be wonderful.

[J. Bringhurst]

We wrote in to the IRS as part of their recent phone forum on correcting 401(k) plan mistakes and asked the above question regarding the transferred asset rule for a merged plan involving multiple mergers. The following was the response from Avaneesh Bhagat:

"It would be as if the component plan existed on a stand alone basis, and the correction was for the participants of that stand-alone plan. In this case you would have 4 individual plans, the fee for each would be determined separately."