Acquisition of sponsor of Safe Harbor 401k

[401QUE]

Greetings 401k Board,

I am hoping for feedback and guidance regarding an unusual situation. Employer A is about to acquire Employer B. Both parties agree that Employer B will terminate their Safe Harbor plan prior to acquisition (closing in less than 30 days). Is there an exception to the testing requirement for the current year (because of elimination of the SH) due to plan termination? They will have made 11/12 months worth of SH accruals, and there will no longer be a plan for the final month.

They will be able to timely issue a "NO 2016 SH" notice, for what it's worth. As an added complexity... If the deal falls through after after 11/30, can Employer B re-issue an updated SH notice to re-institue the 2016 SH contribution? It will certainly be an employee-friendly change, and be done with some time to allow employees to consider the elections for 2016. That's what the 30 day period is intended for if I'm not mistaken.

Any observations, questions, input are appreciated! Thanks!

[Lou S.]

https://www.irs.gov/Retirement-Plans/Reducing-or-Suspending-Safe-Harbor-401%28k%29-Matching-and-Nonelective-Contributions-Midyear

On the first question if the termination is due to acquisition you should be fine with the Plan termination and operating as a safe harbor through date of termination.

On the 2nd question that is a little more sticky but I believe you could likely unwind the termination is the acquision falls though and hand out the 2016 safe harbor notice with less than 30 days and document your reasonable cause for not giving 30 days notice. Perhaps someone who has gone through similar situation can chime in.

[401QUE]

Thanks, Lou S!

[austin3515]

We had an ERISA attorney bless us "un-terminate" a plan that was terminated (obviously before it was put into effect). Of course you could not unvest people if there were non-safe harbor dollars. I don't know what public service goal is achieved by prohibiting you from reviving an otherwise viable plan anyway. So I try to envision the audit of the plan, where the auditor says "you didn't terminate this plan and screw all your loyal hardworking employees?? Disqualification!!"

[401QUE]

Austin, thanks for the (delayed, but) good laugh!