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Unfamiliar Territory - the merger of 3 companies into one - each with a plan


HarleyBabe

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Help!  Currently have the following:  Current client Partnership with a 401(k) Safe Harbor Match plan, 2 other companies merged into my current client to become one company.  The two other companies are going to keep open their S Corps for pay purposes.  We will have 3 equal partners now.  One of the other companies has a 401(k) plan.  We want to either terminate or merge that into my current clients and then amend my current clients plan into whatever we redesign.  My question is should we terminate that other plan or do we have to merge it because the other owner is keeping his S corp open?

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Is there a controlled group or affiliated service group? It sounds like there is probably an ASG, so if that is the case, then you can keep the existing plan, but it would have to be aggregated with the partnership's plan for most purposes. You said the partnership has a safe harbor plan, so I am assuming there are NHCEs covered by the plan. In that case, it's going to be problematic for the one partner to maintain his existing plan since it can't be aggregated with a safe harbor plan for ADP testing, and it will fail coverage due to the non-covered NHCEs.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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7 hours ago, HarleyBabe said:

Help!  Currently have the following:  Current client Partnership with a 401(k) Safe Harbor Match plan, 2 other companies merged into my current client to become one company.  The two other companies are going to keep open their S Corps for pay purposes.  We will have 3 equal partners now. 

HarleyBee, I generally agree with the comments that have already been made, but there's a lot to unpack in the portion of your post that I have quoted above, that cannot be unpacked without a much more detailed description of the transaction. Are the three partners individuals? Will "keep[ing the] S corporations open for pay purposes" mean the S corps are the partners? Are they just doing that to avoid SE tax? Normally, if companies merge with each other, the predecessor companies no longer exist. Maybe they just created a new partnership by throwing in assets?

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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