Effect of Plan Merger on Beneficiary Designations

[Tot]

Following a corporate acquisition, the profit sharing plan of Target merges into the profit sharing 401(k) plan of Buyer.   Prior to plan merger, participants of Target profit sharing plan filed beneficiary designation forms.   Buyer's profit sharing 401(k) plan is silent as to the effectiveness of these beneficiary designations.   Are these beneficiary designations effective with respect to Buyer's plan and, if so, participants' entire interest in Buyer's plan (i.e., profit sharing account plus 401(k) accounts accruing post-plan merger), only profit sharing accounts in Buyer's plan (i.e., the profit sharing account from Target's plan plus the profit sharing account accruing post-merger), or only the profit sharing account transferred from Target's plan?

Because IRC section 414(l) provide that a merger of plans is the combining of plans into a single plan, it would appear that by operation of law the beneficiary designations made with respect to Target's plan remain in effect under Buyer's plan, which is post-merger the combination of two plans, until a new beneficiary designation is filed.

Thoughts?   

[jpod]

Your position is certainly the most logical.  However, I would want to make sure that there isn't any loose language in the surviving plan that could conflict with that position.  You say it's "silent as to the effectiveness of these beneficiary designations," but I would give the pertinent provisions a broader read just to see if they might trip you up. 

[Larry Starr]

Practical answer: go out to all participants in plan; provide copy of old beneficiary designation and ask them to either confirm that that should stay in force with the merger OR they fill out a new one.  A separate form for them to respond to this question should be produced, and a note that if they do not reply, the prior beneficiary form will be assumed to continue in effect.  You want to be pro-active in a situation like this.  No need to make any assumptions without specific notice to all participants.  Cost is minimal and avoidance of lawsuits is desired.

[david rigby]

When you consider/take Larry's advice, please include (perhaps only one or two sentences) a reminder that family changes since the original designation (marriage, divorce, etc.) make it important to carefully review/change the elected beneficiary designation.  

[Luke Bailey]

Larry's advice is of course good. When we merge plans and are in control (e.g., represent acquirer), we always prepare a "plan of merger" document that is adopted by sponsor of each plan. Will typically say that the beneficiary designations survive the merger. If you don't do this and someone dies before you get a new beneficiary designation, you will have a slight quandary. Because of 414(l), as you cite, I think that if there was a fight among potential beneficiaries (e.g., participant with no spouse named friend, but following death kids want to say that the beneficiary designation did not survive merger), the argument that the beneficiary designation survived would be stronger in the absence of any other fact or circumstance. But the plan fiduciaries, now that this issue has been identified, owe the participants a clarification one way or the other pending receipt of the new beneficiary designations.