Dentists purchases another business

[cpc0506]

Dental Practice A purchases another dental practice B in 2011.

Dental Practice A established a 401(k) plan in 2010.

Dental Practice B does not have a 401(k) Plan.

Dental Practice A does not amend its plan to indicate that there is a controlled group and as such does not cover Dental Practice B in 2011 or 2012.

Now Dental Practice A wants to amend the plan to allow for the other Practice to join the plan.

I know that due to transition rules, Dental Practice A's plan is deemed to pass coverage during the transition period. I also know that the plan which is eligible for the coverage transition rule must still satisfy the ADP and ACP Tests.

What I am not sure of is if employees of Dental Practice B are included in the ADP and ACP Tests for Dental Practice A with 0% or are excluded from the test altogether.

Please advise.

[Bill Presson]

Make sure you know exactly how the purchase happened. Buying a business via a stock or entity purchase is very rare, especially in professional practices. Doing it that way causes the buying entity to take on existing liability and most don't want to do that.

Now assuming that IS what happened, then the transition rules in 410(b) apply and the census of the purchased entity is ignored for the plan of Dental Practice A. That would include ADP/ACP.

But if Dental Practice A just bought the assets, then the employees were likely just hired by A and will be treated like any other employee.

[cpc0506]

Dental Practice B is still being called that. It has not taken on the name of Dental Practice A. The employees are still employed by Hollymead. Dental Practice B still has its own EIN. Does that make a differnce.