Acquistion / Assume Old Plan / Set up new Plan

[austin3515]

Company A buys 100% of the ASSETS of Company B on 10/1/2016. Owner of Company A is the sole employee of Company A and has 10 years of service.

Company A assumed sponsorship of Company B's 401k Plan. But now the Owner of Company A wants to maximize his contributions for 2016 and 2017 without giving a contribution to the acquired employees.

Can he establish a new Money Purchase Plan with a year of service so he is the only eligible employee for 2016 and 2017, and then freeze the Plan 1/1/18 when the other employees would be eligible. Perhaps terminate "a few years" after that to satisfy permanency.

Look forward to hearing thoughts.

[Belgarath]

Hmmm...interesting question. Without doing any additional research, I'm inclined to think that 414(a) would require crediting service with the prior employer.

As an aside, IF the technique is valid, could you use two year eligibility rather than one year, and get one more year before freezing?

[austin3515]

(a) Service for predecessor employer For purposes of this part—
(1) in any case in which the employer maintains a plan of a predecessor employer, service for such predecessor shall be treated as service for the employer, and

So they figured out my scheming mind and wanted to make sure that just setting up a new plan would not allow you to circumvent the rules. I thought perhaps the rule to recognize the service was limited to just the plan in question.