410(b)(6) transition period

[R. Butler]

Company A acquires Company B in a stock acquisition.  Employees of Company are immediately moved to Company A, Company B dissolves.  Company A sponsors a retirement plan; the plan does contain provisions that employees acquired in a 410(b)(6) transaction are excluded through the transition period.  A couple of questions --

• Does the fact that employee were transferred to Company A negate the transition period in regards to those employees?  I don't think it does.  The employees were still acquired as part of a 410(b)(6) transaction; it is essentially what happens in an asset sale.
• Company A's plan was restated for Cycle 3 after the acquisition; no change in coverage as a result of the amendment.  Does the restatement end the transition period?  I am thinking that the restatement does not end the transition period, but I am a little more uneasy about this part.

Thanks for any guidance.

[CuseFan]

Agree that B's former employees that are now in A can continue to be excluded through the transition period provided A's plan is not amended to change coverage or benefits, which you state the Cycle 3 restatement did not alter coverage. Therefore, if the contribution structure hasn't changed, I think your transition period is safe.

[Luke Bailey]

I think CuseFan is probably right. You wouldn't necessarily get it out of the statutory language, but Treas. Reg. 1.410(b)-1(f) says it does not matter whether the acquisition is a stock or assets deal. In substance, your stock deal ended up like an asset deal. It does seem messy, however, administratively, because you have to exclude the B employees through a combination of plan language (I would make sure your plan language actually describes these facts and doesn't just parrot the statute, because again I think it would be much harder to get there on just the statutory language) and tracking them in your HRIS, rather than simply excluding them based on the company they work for, which would not adopt the plan. I also infer from your description that B did not have a plan. Think how hard that would be if A had to adopt it and maintain it just for the former B employees who are now on A's payroll.

[traveler]

I am curious as to why one would want to excluded from Company A's plan the new employees that were previously Company B employees?  And if Company A wants to extend the plan to these new employees, must Company A amend its plan prior allowing this class of employees to participate?   

[Ilene Ferenczy]

Remember that all the transition period permits you to do is to operate the plan without change even though it might fail coverage testing otherwise.  If the plan includes people who are employees of the sponsor with no exceptions, you cannot exclude the newly acquired employees who now work for Company A.  However, if they put these employees in an excluded class through the transition period, you are fine.

Be careful to read the plan thoroughly.