Should Surviving Plan in Plan Merger Defer Date of Asset Merger until

[rocknrolls2]

Company Y is a subsidiary of Company X. Effective 1/1/2001, Company Y's qualified plans are to be merged into Company X's qualified plans. Company X ordered a compliance audit of Company Y's qualified plans in anticipation of the merger. Although there were no document defects for which Company Y did not have reliance on its determination letters, there were some ambiguities and inconsistent amendments. Therefore, Company X directed Company Y to apply for a determination letter before merging the plans.

Should Company X merge the plans after Company Y applies for the determination letter or should it wait for the IRS to issue its determination letter to the Company Y qualified plans?

[IRC401]

Regardless of Company X decides, it needs to make certain that all of Y's plans are in compliance with GUST and that the needed amendments to Y's plans don't disappear in the merger.

[Guest tim zellmer]

In response to IRC401, why would Y's plans need to be amended for GUST before the merger if the surviving plan was properly amended within the remedial amendment period? Is there any authority on point? Your position seems rather formalistic, not to mention expensive.

[david rigby]

No lawyer I, but I think the reason that Plan Y must be amended is that many (all?) of the applicable GUST provisions have retroactive effective dates. Not amending Y would mean that Y was either not in compliance, or that it was operated in compliance but not in accordance with plan provisions. Neither of those is a desirable goal.

[Guest tim zellmer]

Wouldn't the Y plan in effect comply with GUST when the surviving plan gets amended? The Y plan doesn't get irradicated upon merger. It lives on with the surviving plan. This is different than in the plan termination context where it is clear amenments are needed. Under the other way of looking at it, will I need to amend the Y plan again, separate from the surviving plan, once the next legal changes get passed by Congress? Of course not, because the amendments to the surviving plan cover previously merged plans. How is my situation different?

[traveler]

I am in agreement with Mr. Zellmer, although, I have no recent IRS guidance that I can rely on with respect to this question. I remember being faced with this question when TRA 86 amendments had to be adopted. I think that the IRS at that time had said that if one plan was merged into another before the end of the remedial amendment period for TRA '86 amendments, and the surviving plan was timely amended, then the plan that was merged into the surviving plan was deemed also to be timely amended, and no additional action was needed.

[IRC401]

I never stated that the Y plan needed to be amended before the merger. I stated that it needed to be amended. Once Y disappears into X, it is easy to forget that it existed.

After a merger Plan Y will exist as part of X but may have very different provisions. The retroactive amendment of the merged plan will need to take into account all of the idocyncracies of the Y plan as it existed before the merger. This may be relatively easy, or may be difficult, especially if you are using a prototype document.

My only point was don't forget about the pre-merger Y plan when you do the GUST amendments.

(On the other hand, my experience with the TRA '86 amendments was that the IRS ignored effective dates; so, maybe my comment was purely academic.)