Merging SH and Non-SH Plans as of 1/1/2015

[austin3515]

Because both of the Plans are audited I wanted to make sure that even though I am merging as of 1/1/2015 the client will not need to engage the CPA for a 2015 audit for the one day. I do not want to merge as of 12/31/2014 because one is SH and the other is not and that just seems to complicated. Note that we are currently within a 410b6c grace period.

I know I have heard that there has been informal guidance on this supporting using 2014 as the final 5500 for the non-surviving plan despite the 1/1/15 effective date. Can anyone point me in the right direction?

[Kevin C]

If nothing else, you can combine the audits for the two plan years since the final plan year is less than 7 months.

FWIW, I would merge at 12/31/14 as long as both plans exist in 2014. I do not consider a merger at the close of business on 12/31/14 to be something that makes the SH plan not be in effect and unchanged for a full 12 month 2014 plan year.

[austin3515]

They do. I'm surprised there isn't some sort of published guidance on any of this stuff. I see your point and I'm probably making too big a deal of it. For example, I could have the merger effective 12/31/2014 @ 11:59 PM.

Is there any guidance saying that is ok to do? So what if there was a pay-date on 12/31/2014 or someone gets a bonus?

[KJohnson]

This link has a reference to the grey book in a DB context

http://benefitslink.com/boards/index.php?/topic/47444-merger-effective-112010/#.VE54ahbD8Y0

[austin3515]

I can't tell you how many times I've asked a question and someone points to a post I started months or even years ago

Perhaps the Gray Book will provide a reasonable response?
Q&A 1997-38
Other DB Issues: Mergers and Short Plan Years
A plan sponsor intends to merge two calendar year plans. To avoid filing a short plan year Form 5500 for either plan, should the merger date be December 31 or January 1?

RESPONSE
The merger documents should include language describing the transaction as taking effect at a time such as "as of the beginning of the plan year" or "as of the end of the plan year." As long as the intention is clear, the IRS should not question a date of either December 31 or January 1 on Form 5500 or on Form 5310-A.

This is very interesting - I can have my merger document specify that the merger is effective "as of the end of the day, December 31, 2014" and my newly restated merged safe harbor plan document effective January 1, 2015. It seems to solve every one of my problems. Does everyone agree? I guess it actually does go to the "midnight merger" idea.

[Kevin C]

The IRS guidance on mergers for safe harbor 401(k) plans in the regulations is "[Reserved]". Since we are nearing the 10th anniversary of the publishing of the final 401(k)/401(m) regulations, I doubt we will get any guidance any time soon. The typical approach when there is no guidance is to follow a reasonable, good faith interpretation of the code.

If there is a pay date or bonus paid on 12/31/2014, I think you would need to treat it under the 2014 plan provisions. Otherwise, you don't have your provisions that satisfy the rules of 1.401(k)-3 and 1.401(m)-3 in effect and unchanged for the full 12 month 2014 plan year.

[austin3515]

This is where I ended up. I made the merger effective as of close of business on 12/31/14. I restated the Plan effective 1/1/2015. I think that takes care of everything.

"The merger of the plans and the transfer and assignment of account balances in the A Plan to the B Plan shall take place as of the close of business on December 31, 2014 after all transactions effective as of that date have been processed in accordance with the terms of the Plan to which they relate."