Mid-Year Acquisition - Comp for Testing, Top Heavy, & SH Allocation Calculations

[OrderOfOps]

Hi all,

I'm having a bit of difficulty thinking through this scenario and could use some help.

Company A (two 50/50 owners) acquires 60% of Company B as of 04/01/24, and B Owner retains 40% ownership. Company B becomes a participating employer in Company A 401(k) Plan as of 04/01/24, and a transfer agreement is executed for Company B 401(k) Plan to be merged into Company A 401(k) Plan as of 01/01/2025. Companies A & B are a brother sister controlled group as of the acquisition. Both Plans pass coverage separately and combined at the time of acquisition (also the EEs of Company B all become employees and participants in Plan A as of 04/01/24).

Company B Plan had a standard SHM and Company A has a SHNE.

Company B consists of 2 employees prior to acquisition, 1 HCE (previously the 100% owner) and 1 NHCE. Company B HCE has >$345k comp from Company B prior to 03/31/24 and earns ~$170k comp from Company A the remainder of the year. Company B NHCE has ~$25k comp from Company B and ~$50k comp from Company A. No compensation is paid from Company B after 03/31/24.

1. I understand that Plan A and Plan B can be tested separately during the transition period for coverage, but are they allowed to be tested separately for other aspects as well (404, 415)? They pass 415 and 404 testing either way, so this isn't a crucial consideration, but I'd like to know how my tests should reflect and for future reference.
2. Does the compensation for 2024 Plan B testing have to include amounts paid by Company A as well, causing a SHM true-up for B NHCE? Both Plans exclude pre-entry compensation, so my thought is that the Plan A SHNE & PS calculations only consider the compensation paid after the B EEs become A Participants on 04/01/24.
3. Both Plans were top-heavy for 2024; Plan A made a discretionary PS allocation - does this cause Plan B to lose its top heavy exemption? If so, B NHCE's Plan B ER contributions are less than 3% of their total (A + B) comp, but B NHCE's total ER contributions (A SHNE + A PS + B SHM) are greater than 3% - does this satisfy the top heavy allocation? The B NHCE SHM/B NHCE Comp is 4%.

 

[CuseFan]

18 hours ago, OrderOfOps said:

Companies A & B are a brother sister controlled group

How? 

Brother-Sister relationship exists when two thresholds are met:
Common Ownership: the same 5 or fewer individuals own 80% or more of each business; and
Identical Ownership: the common owners have identical ownership of more than 50%.

[OrderOfOps]

This is why you need folks to talk you down off the ledge.  Thank you Cuse for your common sense.

[C. B. Zeller]

Not to push you back towards that ledge, but I do think there is a 415(h) controlled group here. So you do have to aggregate, but only for 415 purposes.

[OrderOfOps]

17 hours ago, C. B. Zeller said:

Not to push you back towards that ledge, but I do think there is a 415(h) controlled group here. So you do have to aggregate, but only for 415 purposes.

Thank you for noting this C.B.; thankfully, no 415 issues exist for these individuals with the contributions for both Plans aggregated.