Business/plan transactions

[Belgarath]

I am probably overthinking this. Looking for the simplest way to handle things, consistent with what a client WANTS to do.

Corporation A has a 401(k) plan - safe harbor.

Corporation B will be newly formed, let's say on December 1.

Corporations C-F are a controlled group. They currently have a SEP for 2014.

Corporation B, when formed, will be part of the controlled group with C-F - same owners.

Now, here's where the fun starts. Corporation B will be purchasing corporation A effective December 1, 2014. I haven't been given firm information yet, but let us assume that it is a stock sale. All employees of A will transfer over to B's payroll.

Effective January 1, 2015, C-F, as well as A and B, (all being part of one controlled group) will either adopt a new safe harbor plan, or will sign on as participating employers in the plan currently maintained by A. If a new plan is established, then A's plan will be merged into the new plan.

Since the employer wants this to be seamless, he wants the employees of what is now A, and who will be transferred to B effective the date of the sale, to be continued to be allowed to defer, based on the payroll that will now be from B.

Do you see any problem with B just signing on as a participating employer to A's plan for the balance of 2014, then having all of this, (either via new plan/merger or everyone signing on as a participating employer in A's plan) being handled under the one plan for 2015?

I feel like I may be missing something, but then I think I'm not missing something.

Sigh...

[Kevin C]

Do you see any problem with B just signing on as a participating employer to A's plan for the balance of 2014, then having all of this, (either via new plan/merger or everyone signing on as a participating employer in A's plan) being handled under the one plan for 2015?

I don't see a problem with it. There is nothing in published guidance that would prohibit this. In a situation like that, our document provider recommends notifying the client that there is a slight chance someone at the IRS might have a problem with the amendment. Yes, "slight chance" is exactly what he said.

I also had a chance to ask him about the origins of the claims that the IRS has been saying at conferences that absolutely no mid-year amendments may be made to safe harbor plans unless the IRS specifically says the amendment can be made. The IRS statements being referenced to support those claims are the same statements I've heard at conferences. I've heard the IRS repeatedly express concerns about mid-year amendments and explain that those concerns are the reason for the mid-year amendment prohibition in the regulations. Some individuals have interpreted those same IRS comments to mean the IRS wants a draconian prohibition of all mid-year amendments to safe harbor 401(k) plans.