All Stock Purchase of Company With Safe Harbor 401k By Company With No Pre-Existing 401k

[MeetMeInTheBackdoorRoth]

Have a bit of a weird scenario here and unsure how to proceed. We are getting ready to onboard Company X, who will be offering its employees a 401k for the first time. However, Company X acquired Company Y recently in a total stock purchase. Company Y has an existing Safe Harbor plan. Our belief is that Company X is now the sponsor of that plan. Is that correct? It isn't a merger of plans because there was no plan at Company X to merge with. If Company X is in fact now the sponsor of that Company Y plan, how can we get rid of the Safe Harbor provisions (Company X did not want a Safe Harbor plan)? Are Company X's employees eligible for the plan right now if they meet the general eligibility requirements? We believe yes. Can the SECURE Act provisions around Safe Harbor be utilized here for making a midyear change?

 

Thanks in advance for any insight or suggestions!

[Bill Presson]

If X acquired Y, your best bet is to likely take advantage of the 410b6 transition phase. Leave Y alone and keep the plan in place until the end of the year. Start a new plan for X if you wish. Then merge them and turn the safe harbor off for 2023.

That's just one option. The best option would have been to make all the decisions before the purchase.

[CuseFan]

17 hours ago, MeetMeInTheBackdoorRoth said:

Are Company X's employees eligible for the plan right now if they meet the general eligibility requirements? We believe yes.

Depends on the terms of the plan, particularly the definition of eligible employee, and if X & Y are now one company XY or still separate companies X & Y now within a control group. Plans often exclude employees related to a transaction until the end of the transition period referenced by Bill and often exclude employees of an affiliated employer unless that employer adopts the plan for its employees.

 

15 hours ago, Bill Presson said:

best option would have been to make all the decisions before the purchase

Agreed, and it still amazes me how retirement plans continue to be ignored during due diligence and then subject to scrambling damage control thereafter - at least in the smaller company market.