Controlled Group

[MGOAdmin]

Company A acquires Company B through a stock purchase. Company A’s plan requires 1 year of service and as quarterly entry dates (1/1, 4/1, 7/1, 10/1). Company A acquired this company on May 1, 2014.

1. Am I correct in my thinking that the employees of Company B that have been there 1 year would all enter the plan on 7/1/2014?
2. What code section supports this conclusion? My guess it is somewhere in the controlled group regs.
3. Is there a private letter ruling possibly on the subject? I am trying to give the client an example to support my

[traveler]

Will the employees of company B remain employees of Company B? If so, then you need to look at Company A's plan document to see whether employees of a related company are allowed to participate in Company A's plan.

Also, the Stock Purchase Agreement may provide that service with Company B counts for purposes of eligibility in Company A's plan. If that is the case, then your point 1 is probably correct, but you may still need to amend Company A's plan to credit the service.

[MGOAdmin]

Company B employees become Company A employees on May 15. The Plan document requires the new company to adopt the plan - it does not automatically bring everyone in.

My main concern is directing the client the to code section that best explains this situation.

Thanks for the input

[Belgarath]

A couple of issues here (at least).

First, you have to count service with any member of the controlled group. See DOL regulation 2530.210(d). (I should note that there is some debate as to whether Treasury regulation 1.411(a)-(b)(3)(iv)(B) arrives at a different conclusion, that you only have to count service from the time they become related employers. I don't happen to agree)

Then, you have the IRC 410(b)(6)© "grace period" during which you wouldn't necessarily have to cover the employees of the acquired group anyway.

This will get you started in the right direction. There are some facts and circumstances that will have to be looked at.

[LANDO]

I realize this is an older post, but just in case you are referring to this post regarding what service with related employers must be counted for eligibility and vesting, which I am, I believe the citation to Treasury Regulation 1.411(a)-(b)(3)(iv)(B) above should be a reference to Treas Reg 1.411(a)-5(b)(3)(i - iv). A minor thing, but it might save you a couple of minutes of hunting.

I believe Treas Reg 1.411(a)-5(b)(3)(i) says that a plan "may" disregard service for any periods during which the employer did not maintain the plan, then 1.411(a)-5(b)(3)(ii) says that a participating employer is considered to maintain the plan when the participating employer adopts the plan, and then lastly 1.411(a)-5(b)(3)(iv)(B) clarifies that service with related employers must be counted for periods during which the employers are related.

Generally, I think plans recognize all service with related employers, but 1.411(a)-5(b)(3)(iv)(B) certainly implies that counting service with a related employer, prior to becoming related, is optional...at least for vesting purposes. Our PPA ASCi VS document and our EGTRRA PPD Proto do not distinguish between service prior to becoming related and otherwise, so I would count all service, unless we drafted some override into the plan.

I also notice that the 410(a) regs do not contain similar language and simply reference the DOL regs under 29 CFR 2530...perhaps a different standard for participation?

I would certainly welcome other thoughts or insights on this one.

[Belgarath]

Yes, my apologies for the typo on the citation. Thanks for correcting that.

Yeah, the reason I said there is debate on this issue is the first sentence. (B) Related Employers. Service with an employer is treated as service for certain related employers for the period during which the employers are related."

Some read this to say that you only have to credit service that was service earned WHILE the businesses were related, and others interpret it that if the businesses are currently related, you must credit all service earned with any of those businesses, even if the businesses were not related while that service was earned.

I lean toward the latter, but I certainly can see an argument for the former. Way back when as I was first doing some research on this issue - many, many years ago, I seem to recall that such luminaries as Derrin Watson and Sal Tripodi didn't necessarily agree - but that may have long since changed.

An interesting question, regardless of which interpretation you favor.

[LANDO]

Thanks for the response Belgrath. I didn't see that Sal addresses it in the EOB, but maybe I missed it. And maybe I didn't look that hard after I found your citations above as they were right on point.

Actually, I think it would be pretty rare where an employer would want to disregard service with a related employer anyway.

If a sponsor did want to ignore service with a related ER prior to becoming related, and assuming it's allowed:

On the eligibilty side, if a sponsor wanted to delay the entry of a related employer's employees into the plan, they could just move the effective date of the participation agreement.

On the Vesting side, it may be possible but could create additional recordkeeping issues, so I'd try to avoid it there as well.

I think I like your answer better.