Merger of Safe Harbor plan to non safe harbor

[Guest Mk9522]

Plan A is safe harbor 401k with a match ( 100% vested safe harbor match).

Plan B is 401k non safe harbor with a match subject to vesting schedule

Plan A is going to merge into Plan B ( Employer B acquired Employer A).

Do the participants in Plan A have to maintain 100% vesting on all future match contributions to Plan B? Does the merger mean it is an amendment to the vesting schedule? OR can the Plan A safe harbor match contributions merge into their own source in Plan B ( remain 100% vested) and then the match for all participants ( Plan A and Plan B merged together) be subject to a vesting schedule?

[Tom Poje]

consider the case of a non-merged plan:

a plan could have a safe harbor match for ADP purposes. Those matches are considered a type of QMAC. Thus, the vesting for these has nothing to do with discretionary matches. they are always 100% vested.

a plan could also have a safe harbor match for ACP purposes. Those matches could be subject to a vesting schedule. If, for whatever reason, those matches were 100% vested per terms of the document, then anyone who has 3 years svc would get their choice of vesting schedules if the company decided to change vesting schedules.

in other words, the ADP safe harbor match is considered to be a sepearte 'source' than a discretionary match, thus the 100% vesting doesn't carry over 'protected' if that is a good term.

[Guest Mk9522]

consider the case of a non-merged plan:

a plan could have a safe harbor match for ADP purposes. Those matches are considered a type of QMAC. Thus, the vesting for these has nothing to do with discretionary matches. they are always 100% vested.

a plan could also have a safe harbor match for ACP purposes. Those matches could be subject to a vesting schedule. If, for whatever reason, those matches were 100% vested per terms of the document, then anyone who has 3 years svc would get their choice of vesting schedules if the company decided to change vesting schedules.

in other words, the ADP safe harbor match is considered to be a sepearte 'source' than a discretionary match, thus the 100% vesting doesn't carry over 'protected' if that is a good term.

Thank you, that is what I think too....but looking for a cite or something to prove this

[Belgarath]

I have a separate question on the same situation. An employer (A) with a SH matching contribution was acquired in a IRC 410(b)(6)© transaction (in a stock purchase) by an employer (B) with a non-safe harbor plan. They want to merge A's plan into B's plan mid year. Question is, does that blow the safe harbor for Employer A's plan?

1.401(k)-5 naturally is "reserved" so it gives you nothing.

1.401(k)-3(e)(4) makes it clear that you could preserve the safe harbor treatment if the Plan A is TERMINATED, but it naturally doesn't discuss a merger. Absent any specific guidance, it would appear that the conservative position is to say that plan A can't be treated as a safe harbor in the year of the merger. And yet, this is so asinine that it is rather hard to believe.

So, I'm just soliciting opinions - does anyone hve any specific experience, knowledge of conversations with IRS officials or questions from the podium at conferences, etc., that deal with this issue? Any opinions on the "risk" of treating it as a safe harbor for the year of merger?

[Belgarath]

Just checking again to see if anyone has opinions on the last question?

[Tom Poje]

no clues, have never heard the issue addressed.

obviously you do a 'good faith effort' in absense of any direction from the IRS in the regs.

I'd think as of the date of the merger company A ceases to exist, so the safe harbor ceased at that point and was satisfied.

[Belgarath]

Thanks Tom, BUT, Company A didn't cease to exist. (Would this alter your thinking at all?) This was a stock purchase, not an asset purchase. So arguably, since there is the 410(b)(6)© transition period, the Corporation A could continue a safe harbor plan for 2013 for the full year, which negates following what I'd consider the more common sense approach, which would be to allow SH treatment for the short period. My personal "scales of justice" say that since the plan could clearly be terminated and receive safe harbor treatment for the short year, the same treatment should be permissible for a merger.

However, the IRS seems to have some strange ideas on safe harbor plans. If they would just allow me to dictate policy, then life wouldbe a lot easier.

[justatester]

What if the situation was reversed? A non-safe harbor plan mergering into a safe harbor plan? The non-sh plan has a match of 50% to 3%, they are moving to a SH plan effective 4/1/13 with a 100% up to 5% match. Any problems?