Transition Rule

[Guest Golden401k]

X buys Y in a stock purchase on 12/31/11. Both have 401k plans.

Y’s plan is frozen 12/31/11 and they are invited to participate in X’s plan 1/1/2012.

When I perform the 2012 testing for Plan X, I can’t use the “coverage transition rules” because I’ve already invited Y into Plan X. Right?

[MWeddell]

I disagree. From what you've said, you can still use the merger & acquisition transition period rule when performing 2012 coverage testing. The period did not prematurely end because "there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition." Treas. Reg. 1.410(b)-2(f).

[k man]

I disagree. From what you've said, you can still use the merger & acquisition transition period rule when performing 2012 coverage testing. The period did not prematurely end because "there is no significant change in the plan or in the coverage of the plan other than the acquisition or disposition." Treas. Reg. 1.410(b)-2(f).

mweddell, are you saying that adding a significant group of employees to plan X does not qualify as a "significant change in the coverage of the plan?" that is the terminology in 1.410(b)-2(f).

[Guest Golden401k]

I have never seen an application of the transition in this situation. If the transition applies, then I should be able to ignore Y's employees who are participating in Plan X when I perform the coverage testing, but what about the ADP test? I can't imagine I could perform an ADP test based on just X's employees and ignore the deferrals from Y's.

[MWeddell]

k man,

In my opinion, there is a "significant change in the plan or in the coverage of the plan."

In my opinion, there is not a "significant change in the plan or in the coverage of the plan other than the acquisition or disposition." The only change to the plan is to accommodate the acquisition or disposition.