Company purchase - credit for prior service

[Cynchbeast]

We discovered 6 employees on a client's 2012 census who deferred to the 401(k), had never been listed in prior years and had hire dates going back to the 1990's. We found that these were employees from a company they purchased effective 10/01/12 and they gave them credit for service with the prior company so they could participate in the plan.

1) Can they adopt an amendment now, retroactive to 10/01/12 allowing prior service with previous employer for eligibility and vesting purposes?

2) If they cannot adopt a retroactive amendment, and short of returning deferrals to them as a mistake of fact, can anyone suggest any other solutions?

[rcline46]

The most fundamental question - was it a stock purchase or an asset purchase?

[Cynchbeast]

I don't know - but will find out. Meanwhile, could we look at both scenarios?

[david rigby]

...they gave them credit for service with the prior company so they could participate in the plan.

Who is "they" and what does "gave" mean? For example, if there is written Board action, then you may already have the proper authorization (although may not yet have completed the formal plan amendment).

[rcline46]

Stock purchase, you get the original hire dates automatically. Asset purchase you MAY grant service for whatever purpose you choose.

[Cynchbeast]

It was an asset purchase. So how do we give the newly hired employees credit for prior service? Board resolution? Plan amendment? Some other means?

[rcline46]

Assuming the plan was not also acquired, an amendment to the plan document. Most documents provide flexibility in what the credit is for. For example, eligibility but not vesting.