Mid Year Plan Merger

[M_2015]

401(k) plan acquired in a stock acquisition in mid-2025 is merging into Buyer's 401(k) plan in August.  Without 410(b)(6) transition relief, how is this tested for coverage and nondiscrimination?  The merging plan would not have a short plan year, so are the plans simply aggregated for the 2026 plan year for testing purposes?       

[acm_acm]

No one answered yet, so I'll give you my opinion.

It sounds like the merging plan will merge after a complete plan year, but even if a partial plan year, the merging plan has to be tested on its own through August.  Kind of like how it will have to file a final Form 5500 for that plan year.

The remaining plan gets tested for the full plan year including the new participants for the part of the year they are in the plan (after August).  Just like there will be a single 2026 Form 5500, but with an increase in the EOY participant counts to reflect the merged participants.

Hopefully others on here can confirm.

[M_2015]

Thank you.  The merging plan will merge mid-year, so I would suspect it needs to be separately tested through the merging date.  It's in the same controlled group, however.  I think it would be tested for coverage and nondiscrimination on its own (as its own plan, not aggregated with the buyer plan) for the first 8 months.  The last four months would be combined with the buyer's plan, but how would they factor the first 8 months?  Would they be included in the full plan year numbers, with percentages of actual compensation simply inherent in the testing?      

[acm_acm]

58 minutes ago, M_2015 said:

It's in the same controlled group, however.

Are they already in the same controlled group now?  If so, you should read posts like: 

 

For part-year participants you would use actual, partial year deferred/contributed amounts and their compensation for the partial year.  This "prorates" both so you get to comparable percentages.

[Lou S.]

A agree that acm_acm laid out a perfectly acceptable method for testing the plans. Test the premerger Plan on its own and the postmerger plan on its own including all participants after the merger. 

I think another reasonable method since it is a stock acquisition forming a controlled group during the year and not using the transition relief would be to test the plans together as a single aggregated plan for the year.  

In either even you will have 2 5500s.

[FORMER ESQ.]

I assume both plans have a 12/31 plan year end. If so, unless you are able to permissively aggregate the plans under 1.410(b)-7(d)(5) and, therefore, treat the plan merger as if it had occured on the first day of the plan year, the coverge testing for the seller's plan prior to the plan merger must be conducted by including all otherwise eligible employees in the controlled group. This is because, according to the fact pattern, the 410(b) transition rule does not apply.