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There is a multiple employer plan that has several adopting employers. One of the adopting employers has been operating under the plan without an adoption agreement since the spring of 2017. Can this be corrected with an amendment because it's still within that plan year or does it need to go through a correction program? 

Also, one of the adopting employers has merged into another adopting employer, does the merged plan need to sign a new participation agreement or should it be terminated? 

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Since you can actually adopt a plan with a calendar year on December 31, retroactive to January 1, you do not have a retroactive amendment problem if your participating employer (X Corp) signs a Participation Agreement before the end of the year. The Plan Sponsor and X Corp should each sign resolutions  - the sponsor authorizing the participation by X Corp and X Corp formally adopting the Plan.

I am assuming you meant to ask if the merged employer needs to sign a new Participation Agreement. If  both Y and Z were participating employers and Y merged into Z, then you have no need to have Z sign a new agreement - it simply has more employees who participate. If instead, Y and Z are merged into NewCo, then NewCo must sign a Participation Agreement. 

In any case,I would also memorialize what happened by adopting a resolution of Sponsor formally ending Y's participation in my first scenario and both in the second.

You should ask these companies for documents because they often call an asset sale a merger.    

 

 

 

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Re the second part of your question, if it was really a merger and not some other sort of transaction, i.e., there is now just one surviving company that is the W-2 employer of all the remaining employees, you should be fine without additional paperwork. The nonsurviving company's adoption agreement is now a historical document and the surviving company's should be adequate without any change.

Re the first, my understanding is that the IRS has taken the position that you have to adopt a plan before you can make elective deferrals under it. Here, there was a plan, but this employer had not yet adopted. I think that the IRS might take the position that the deferrals for the period prior to adoption are invalid. If so, you would need VCP to correct.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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OK, so not really a merger, it sounds like, but still no need for a new adoption agreement. Employer B, which has an adoption agreement, simply has more employees.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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On 10/23/2017 at 4:16 PM, PracticalERISA said:

Since you can actually adopt a plan with a calendar year on December 31, retroactive to January 1, you do not have a retroactive amendment problem if your participating employer (X Corp) signs a Participation Agreement before the end of the year.

 

 

This would not work if this is a 401(k) plan with deferrals.  There cannot be salary deferrals before the plan is adopted.

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