Service with predecessor who had no prior plan

[Trekker]

ABC Corporation has existed for several years and does not maintain a retirement plan. ABC became part of a controlled group with XYZ Corporation on October 1, 2011. XYZ has maintained a calendar year plan for many years.

ABC will adopt the XYZ plan effective January 1, 2013 (the end of the transition period).

May XYZ consider October 1, 2011, the hire date for all ABC employees and NOT count prior service with ABC for purposes of eligibility and vesting?

It seems this should be acceptable, but I can't quite find an affirmative answer.

Thanks for any insights.

[ETA Consulting LLC]

I don't think you can as the "Employer" did not change. This would be different if it were an asset purchase which didn't involve a controlled group of two employers.

Notice that there are a different set of rules when it comes to a deemed 'severance of employment' for distribution purposes when one company acquires a subsidiary of another (and doesn't take over an existing plan). This rule, however, impacts the ability to take a distribution.

In your case, you're looking for the ability to exclude service for purposes of eligibility. There doesn't appear to be any exception. There are some exceptions for "vesting", but I'm not sure those stated exceptions would apply.

Good Luck!

[QDROphile]

I disagree. ABC employees have no service in the XYZ controlled group, which maintains the plan, until the acquisition. They can be given prior service credit, but it is not required.

[ETA Consulting LLC]

I disagree. ABC employees have no service in the XYZ controlled group, which maintains the plan, until the acquisition. They can be given prior service credit, but it is not required.

If there are two unrelated companies: Let's say ABC and DEF. Each company has it's own employees. Those companies merge into a controlled group. On what authority would you not retain the original hire dates for each employee with each company?

If I was hired at ABC on January 5, 2005, and ABC is purchased by DEF (under a stock purchase), on what authority would DEF be allowed to ignore my service under the company they just purchased?

Please advise.

[Kevin C]

For eligibility, prior service with ABC counts.

2530.210(d)Controlled groups of corporations.—

(1) With respect to a plan maintained by one or more members of a controlled group of corporations (within the meaning of section 1563(a) of the Code, determined without regard to section 1563 (a)(4) and (e)(3)©), all employees of such corporations shall be treated as employed by a single employer.

(2) Accordingly, except as referred to in paragraph (a)(1) and provided in paragraph (f) of this section, in determining an employee's service for eligibility to participate and vesting purposes, all service with any employer which is a member of the controlled group of corporations shall be taken into account. Except as referred to in paragraph (a)(2) and provided in paragraph (f) of this section, in determining a participant's service for benefit accrual purposes, all service during periods of participation covered under the plan with any employer which is a member of the controlled group of corporations shall be taken into account.

For vesting, I think you get a different answer since ABC did not maintain a plan.

[Trekker]

After reading the replies and thinking until my head hurt, I must agree that service is counted. It's not really a case of predecessor employer since the employer still exists. Not the answer I wanted, but it is what it is.

If anyone can think of a loophole, I'm open!

Thanks.