Retroactive modification of standardized prototype plan to avoid inclu

[traveler]

I have a corporate client (Company A) who acquired a couple corporations (Company Y and Z) during 1999. Each of these entities sponsored a 401(k) plan. The Plans sponsored by Company A and Y were standardized prototype plans, neither of which were amended prior to the corporate transaction to specifically exclude participation by employees of other members of the controlled group. It seems to me that walk-in CAP asking for reformation of the plans would make sense, since each group was covered by a 401(k) plan. Anyone have any experience with a situation such as this?

[rcline46]

Mergers and Acquisitions with qualified plans is a real problem since it seems in smaller businesses no one looks to the plan issues until too late.

First, I think there is an arguement under regs that the separate companies can be tested separately. Read them carefully for when you have to aggregate.

Second, it may not be possible under law for Company A to force Company B to be a member of companies A plan (as used in Standardized plans).

Third, you now know why standardized plans are a VERY dangerous tool!

[KJohnson]

My gut reaction has always been that trying to use Walk-In CAP to avoid making contributions or granting accruals to NHCEs who would ordinarily be covered by a plan's terms is a tough sell. However I think you might be able to use it in this case. Look at the following to links provided by Reish and Luftman where they were able to deal with this exact situation through Walk-In CAP. I think you are in a fairly good situation since all NHCE's would presumably be covered by at least one plan after your "reformation"

http://www.benefitslink.com/reish/articles...6.98.using.html

http://www.benefitslink.com/reish/articles.../reformcap.html

Just remember, Walk-in Cap only protects qualificaiton of the Plan. It might not protect you from for example an ERISA claim by employee of company Z that he or she is entitled to a matching conribution under all three plans.