410(b) question

[bzorc]

I'm having a major brain freeze regarding this question, so here goes.

Company A merged into Company B on 10-1-2016. Company A sponsored a safe-harbor 401(k) plan (4% match), and the safe-harbor contribution had been made at each pay period. All employees of A "terminated" on 9-30-16 and began working for B on 10-1-16.

Company A remains in existence (to collect outstanding receivables, etc) and the owners of the company remain "employed" by A. The owners are asking if they could make a discretionary profit sharing contribution, over and above the safe-harbor match, on their behalf, omitting the rank and file employees who were all terminated on 9-30-16.

I have made myself nuts with the following questions:

Could they make this contribution only for themselves, as the contribution (benefit) would only benefit HCE's?

As the Safe-Harbor match satisfied the Top-Heavy requirement, would they need to provide the 3% TH to those who did not receive the match regardless of question #1?

Any responses, as always, are greatly appreciated!

[Lou S.]

Plan A will not pass testing with only the owners getting a PS contribution unless all NHCEs terminated with fewer than 500 hours which is extremely unlikely given your 9-30 date as your ratio percentage will be 0% which will only pass if there are no NHCEs required to be in the 410(b) test.

Yes the plan would need a TH minimum contribution if it makes a PS contribution. However the TH contrib in a DC plan goes to non-key employees employed on the last day of the plan year of which there are none.

Also the way you have worded this question makes me think this was an asset sale and not a stock sale, if that's not the case my answer might change.