Merge or Terminate Plan?

[Guest Julie]

At the beginning of this year, our company bought a small company of about 60 employees. The employees of that company currently have a 401(k) plan that they will continue to contribute to until we merge their plan into our plan. When we bring those employees into our plan, will we have to terminate their current plan? I need some guidance as to how to go about this.

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Julie

[Dave Baker]

You can "freeze" the old plan, meaning just make no further contributions to its trust fund, and keep the funds in that plan's trust fund until the individuals terminate employment with you. But keep the document up to date, and keep filing Form 5500 each year.

Or you could formally terminate that plan by having the employer so specify in a corporate action of some sort ("Make it so, Commander Riker") ... but that almost certainly would give rise to a right to an immediate distribution to participants in that plan. (Followed by: "Hey, how come the new guys are getting money from their plan and we old-timers can't?" from your current employees.) But even then, the plan probably can't make distributions of the elective deferral part of their accounts to people who are still working for you if they're not yet age 59-1/2 ... if your company sponsors another plan into which those funds could be parked, the IRS makes you do that (due to a tax code provision).

[Guest bswift]

julie, if your plan is a 401(k) plan, the only way to get rid of the acquired company's plan is to merge it into your 401(k) plan. Termination and distribution will not be an option under 401(k)(10). Assuming the you merger the plans, you will have to undertake a 411(d)(6) anti-cutback analysis to make sure that the optional forms of benefits under the acquired company's plan are preserved in your plan. good luck.

[Guest LARRY]

Julie : you can terminate the old plan, the procedures are on the back of IRS Form 5310 or less expensively you can transfer the Assets and Liabilities of one Plan into the other using the procedures under IRS Form 5310A which both Plans will have to file.

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[Guest Robert Eardley]

We are contemplating retroactively merging (that is,using an effective date of 1/1/99) a profitsharing and 401k plan with matching contributions into a 401k plan with matching contributions. Is there any prohibition against this the retroactive date provided that 411d6 benefits are protected?

[This message has been edited by Robert Eardley (edited 05-04-99).]

[david rigby]

For Robert,

Need more facts. What type(s) of plans? How retroactive are you talking about? Are there any significant differences between the plans?

[Guest bswift]

robert, im confused too, why merge the plans retroactively? (benefits attorneys' warning lights flash when you say those words). also, my recollection is that you typically don't have to file a form 5310A for the merger of two or more defined contribution plans.