Safe Harbor 401(k) & Plan Merger

[R. Butler]

Co. A sponsors a safe harbor 401(k) plan using the match to meet safe harbor

Co. B sponsors a safe harbor 401(k) plan using the 3% to meet safe harbor

Co. A purchases Co. B in mid-2013 in a stock purchase. Each company has continued to maintain separate plans. Thye want to merge those plans now & Co. A plan provisions.

Had they done this in 2013 I think we would have been okay under Treas. Reg. §§1.401(k)-3(e)(4). Are we still okay to merge the plans in 2014? We are still in the transition period, so I'm inclined to think it is okay because the plan merger is still due to the business transaction, they just didn't address the plans as quickly as they could have.

Thanks in advance for any guidance.

[Kevin C]

The IRS reserved a section in the safe harbor regulations for merger issues, but has not published anything. I haven't even heard any informal discussions about merger issues for SH plans. I think we are better off not asking for additional guidance.

I agree with you that in your situation 1.401(k)-3(e)(4) says you can have a short final year when Plan B terminates. If the Company B employees will be eligible for Plan A, 1.401(k)-1(d)(4) prevents distributions to those who are still employed. That leaves you with no choice but to transfer their balances from Plan B to Plan A, which is really a merger.

Of course, three people can read the 401(k) regs and get five different interpretations of the rules on mid-year changes to safe harbor plans. You'll have to decide if you think a reasonable interpretation of the regs supports what they want to do.

[MWeddell]

Treas. Reg. §§1.401(k)-3(e)(4) is irrelevant because Plan B and Plan A are merging together and there is no plan termination.

Assuming both plans use the calendar year as the plan year, then I don't see a way to merge the plans together before 12/31/2014 without monkeying around with the plan years or losing the safe harbor status.