VCP during Transition Period

[IhrtERISA]

Company A and Company B merge on July 1, 2015 under the common ownership of a management company. Company A and Company B each of a 401(k) plan.

Since the merger has already taken place, it is my understanding that under the same desk rule, one of the 401(k) plans cannot be terminated and thus the plans must be merged. To date, the plans have been run separately.

My question relates to the interplay between the transition period and the submitting a VCP submission prior to applying for a plan merger

1. Transition Period

My understanding is that the plans must be merged by December 31, 2016 (a full plan year after the company merger). Is this correct, even if the plans have been operating independently (as they were before the merger) all along?

2. VCP

Company A's plan has errors requiring correction under the VCP program. We want to complete the VCP before merging the plan to avoid tainting the Company B plan. However, if the Transition Period applies, what would happen if the DOL does not rule on the VCP submission before the end of the Transition period?

Thank you!

[MoJo]

1. Transition Period

Actually, the plans never need to merge. The "transition" rule simply provides relief from having to count *all* employees of the controlled group for coverage testing of each of the plans - until the end of the transition period (subject to being able to pass coverage individually on the day before the merger took place). If the plans can pass coverage after the end of the transition period, or can pass coverage on an aggregated basis after the end of the transition period, they can remain "un-merged." Nothing in the Code ever requires plans to merge - it just has various testing implications depending on who is covered by each of the plans, and what the (testable) benefits are in each plan.

2. VCP

First, see above. The plans may be able to remain separate (or be tested on an aggregate basis) and still be viable. Second, your concern of tainting the clean plan is valid. Consider instead of merging the plans (if necessary), simply freezing the dirty plan while seeking the IRS's blessing of the VCP filing, and letting all the employees participate in the other ("clean") plan - amended however the employer sees fit. When (and if) the IRS rules on the VCP application, the "dirty" plan can be cleaned up and merged into the other plan.

[QDROphile]

What is the concern with the taint? Whether or not the plans are merged, unless it is a very unusual problem, the correction is the correction is the correction. Whatever is broken, which is now defined and quantified, will be fixed. The amounts in question and the affected participants will not change because the form of the plan document changes. What does freezing the disqualified plan accomplish? Or is there a concern that the plan will not be able to get IRS approval or implement properly the correction?

[IhrtERISA]

Thank you. MoJo and QDROphile for your helpful responses.

Company A's plan has a number of operational errors that were discovered after the merger that require a VCP submission and cannot be corrected via Self-Correction. Client wanted to terminate this plan (Company A Plan), but since the merger has already taken place, it is our understanding that the same desk rule prohibits termination of the plan (or rather, the ensuing distribution to participants that remain employees of the merged company).

[IhrtERISA]

Can anyone point me in the right direction for authority that states there is no requirement for plans to be merged after a company merger (i.e., continue to operate them independently and not merger or terminate either plan). It seems like a no brainer, but I've been having trouble finding any regulations that address. Thanks!

[Mike Preston]

Start at 410(b)(6)©

[Griswold]

IRC 414(a) speaks of "in any case in which the employer maintains the plan of a predecessor employer..." so at the very least the Code contemplates the scenario.