Corporate merger situation

[Belgarath]

A situation I haven't encountered before, and I'm wrestling with it.

Suppose you have two non-profit corporations, A and B. A sponsors a non-ERISA 403(b) plan. B sponsors a SIMPLE-IRA. They merge, mid year, to form a new non-profit corporation C, with a new EIN, etc.

Apparently A & B no longer exist, although the information I have is far from comprehensive.

These are not plans that can be merged with any other plans.

Can you, for the remainder of 2017, treat each set of employees as still "separate" and continue the plans as before, and hope that if ever audited, the IRS is reasonable and accepts this as a good faith compliance effort? Do you treat each plan as terminated as of the merger date, and just start fresh with a new plan - which is problematic at best, since  the merger took place some time ago (date unknown - I only know that it was in 2017)? I'm reasonably certain that no plan termination notifications/resolutions/amendments were ever done prior to the merger. I don't yet know if deferrals/employer contributions to one or both plans have been made since the merger.

Quite a fiasco...

All thoughts appreciated!

[MoJo]

Ahh.  Benefits plans not considered at the 11th hour but rather at the 13th hour.  How unique... NOT!

Fundamentally I think you need to know how the "merger" was structured.  Was it an entity merger?  Did each organization simply contribute assets to the new organization (distinction in the corporate world would be stock vs. asset sale).  A & B may still exist (either as shell entities, or through the surviving "combined" entity) and I think the answer to your questions are very much dependent on that fact.

Second, have they continued to operate the plans for the respective employee base?  You indicate that you don't know - but I think that is an important fact to discover.  If so, I think you have a problem....

Third, was counsel involved?  Are they now?  Who is their malpractice carrier (just kidding - no I'm not...).

Many more questions, but it's time for benefits counsel to get involved....

[Belgarath]

Thanks MoJo. At this point, I have no direct information, and only sketchy information second-hand. Let's assume that:

Neither A nor B still exist, therefore any assets they may have had were contributed to C. Let's also assume that both plans have continued to operate separately, with regard to the employees of each prior corporation prior to the merger. Was counsel involved? Perhaps, but I'm merely guessing that it may have been counsel where employee benefits plans were not addressed. These are not large, wealthy non-profit corporations, so this is the type of stuff where in my experience, counsel is rarely involved in discussion of the benefit plans.

[Kevin C]

Doesn't this help?

Quote

 

408(p)(10) Special rules for acquisitions, dispositions, and similar transactions.

(A) In general. An employer which fails to meet any applicable requirement by reason of an acquisition, disposition, or similar transaction shall not be treated as failing to meet such requirement during the transition period if—

    (i) the employer satisfies requirements similar to the requirements of section 410(b)(6)(C)(i)(II) ; and

    (ii) the qualified salary reduction arrangement maintained by the employer would satisfy the requirements of this subsection after the transaction if the employer which maintained the arrangement before the transaction had remained a separate employer.

(B)  Applicable requirement. For purposes of this paragraph, the term “applicable requirement” means—

    (i) the requirement under paragraph (2)(A)(i) that an employer be an eligible employer;

    (ii) the requirement under paragraph (2)(D) that an arrangement be the only plan of an employer; and

    (iii)  the participation requirements under paragraph (4).

(C)  Transition period. For purposes of this paragraph, the term “transition period” means the period beginning on the date of any transaction described in subparagraph (A) and ending on the last day of the second calendar year following the calendar year in which such transaction occurs.

 

 

[Belgarath]

Thanks Kevin - I had looked at this, as well as the normal 401(b)(6)(C), and I guess the crux of my question really boils down to this:

Are you allowed to use these transition dispensations when two corporations "merge" to form a completely new corporation? Logically, it should be yes, but I'm just not certain. What do you think?

[Kevin C]

I agree the transition period should apply.  1.410(b)-2(f) clearly says that mergers are included under the terms “acquisition” and “disposition”  in 410(b)(6)(C). Even if you think the definition of those terms above is different, the phrase "similar transaction" above should include a merger. If they continue the plans as is during the transition period, I think they have satisfied (A)(i) above. Your description sounds like no significant coverage change will occur.  (A)(ii)  shouldn't be a problem either, since the plan will continue as is.  I'm assuming here that they met the Simple requirements before the merger, so it would have continued to meet the requirements if the sponsor had remained a separate employer.  Those are the two requirements to be eligible for the transition period.

 

 

[Belgarath]

Gracias.