Control Group no longer and new plan

[cpc0506]

Company A was part of a control group and was a participating employer in Plan A  (company A was not the main sponsor).  Plan involved is a 5/31 Fiscal Year End Plan.   FYI: Plan A is a Profit Sharing only plan.  Company A' s ownership changes effective 11/1/2018 and is no longer a member of the control group and intends to terminate participating employer agreement effective 10/31/2018 and wants to start its own Profit Sharing only plan.  Company A intends to sponsor a 5/31 Fiscal Year End Plan as well.

The question is: Can Company A's plan be effective 6/1/208 so that full year compensation can be used in determining  PS allocation at 5/31/2019 OR does the plan's effective date need to be 11/1/2018 due to prior participation in Plan A?

[Larry Starr]

Your spinning off the "plan" of company A from the controlled group; there is no reason why it can't remain 6/1 - 5/30 and the effective date of the spin off  be 6/1/18 and full year comp applied for the 12 months ending 5/30/19.

[cpc0506]

I understand the spinning off, but does it matter that Company A was part of Control Group A's plan from 6/1/18 to 10/31/2018 since the participating employer agreement was terminated on 10/31/18?

 

[Larry Starr]

23 hours ago, cpc0506 said:

I understand the spinning off, but does it matter that Company A was part of Control Group A's plan from 6/1/18 to 10/31/2018 since the participating employer agreement was terminated on 10/31/18?

 

Does it matter "for what purpose"?

[cpc0506]

My question really centers around the fact that Company A was a participating Employer in Control Group A's plan for 6 months before terminating the arrangement and if the new plan starts 6/1/18, the employees are essentially covered by 2 plans for 6 months of the time.  Also, since Company A was part of a Control Group for 6 months, do we need to be concerned about coverage issues (none of the other members of the Control Group are covered by Company A's new plan) for part of the year?

[Larry Starr]

OK; I would suggest that it does not matter that they were covered for an "overlapping" period of 6 months.  Of course, the normal rules for 415 limits, deferral limits, and the like still must be met.  If no one get any allocation and no one deferred for the first six months, then there is absolutely nothing to worry about.  It sounds like nothing was allocated to the participants who were in the old plan for those first six months.  If that is the case, just ignore that period of time in the new plan, which can be made effective back to the beginning of the year as I previously indicated.

I guess a question to you (or anyone else) is where do you see an actual problem?