Merger/Acquisitions

[Nassau]

My client is considering amending their plan document for 2013 to add a traditional safe harbor match. However, they were recently acquired and there is a chance that the plan will be merged (not terminated) into the parent plan.

1. Would they have to amend the plan to remove the safe harbor feature before merging if the parent company is not safe harbor?

2. Does a plan merger constitute a short plan year (so that they wouldn’t have to test)?

[Kevin C]

There are some old threads on the topic. The SH special rules for plan mergers are in 1.401(k)-5. Actually, they would be if there were any. It says "[Reserved]".

1. I'm don't see why the old plan being SH on the merger date would affect ability to merge. You still have to maintain the 100% vesting and distribution restrictions for the SH account in the receiving plan even if the SH provisions are removed before the merger. As for being able to do a merger with a SH plan mid-year, no one knows for sure. I would do the merger at the end of the year.

2. There are short plan year rules that let you stay SH if there is a plan termination in connection with a 410(b)(6)© transaction in 1.401(k)-3(e)(4). Does a merger count as a plan termination? I don't know. Again, the best solution is to do this at year end, so you don't have a short year. When you say recently acquired, do you mean in 2012? If so, your 410(b)(6)© transition period would get you through the end of 2013 for a calendar year plan.

[Tom Poje]

not sure if it's quite what you are looking for but

Q and A 9 from Corbel says

http://www.relius.net/News/TechnicalUpdates.aspx?ID=432

9. May an employer terminate a safe harbor 401(k) plan and retain safe harbor status for the short plan year?

Yes. If the employer terminates the safe harbor 401(k) plan because: (1) the employer incurs a substantial business hardship that satisfies the pension plan funding waiver requirements, or (2) the employer is involved with an acquisition or disposition that satisfies the requirements of Code §410(b)(6)©, the plan continues to qualify for safe harbor status for the short plan year in which the plan terminates. The regulations do not impose an advance notice requirement to terminate a safe harbor 401(k) plan under either of these two circumstances.

Example: SNA acquires the stock of LTD as of June 1, 2009. LTD terminates its safe harbor 401(k) plan as of the date of the acquisition. LTD funds the plan through the date of the termination. The plan is a safe harbor 401(k) plan for the short plan year since it terminates because of an acquisition transaction.