Statutory Exclusions when one Company buys another

[Guest Richard Scheer]

Company A buys Company B in October 1999.

Company A has a 401(k) Plan which allows an employee to enter the Plan on the date of hire. For the 2000 Plan Year, can we exclude all of Company B's employees from the ADP/ACP test on the basis of statutory exclusions since they worked for Company A for less than 1 year? Or do we have to use their original date of hire with Company B?

Note that company B's employees did not enter the Plan until January 1, 2000 since this was not a controlled group for the 1999 Plan Year. Prior to 2000, Company B had its own 401(k) Plan which is in the process of being terminated.

Any help would be appreciated.

[Bob R]

If it was a stock purchase, then I'm presuming that B formally adopted the plan of A. Once B adopts the plan, then I think all service with B would count. This would also be the case if A maintains the plan of B. You said that Plan B is being terminated. If there has been a stock sale that has already taken place, then it's too late. Once you own the stock of B, you are maintaining B's plan and all service is counted pursuant to IRC Section 414(a).

If it was an asset sale, then there is no clear answer. Since B's plan will not be merged into A's plan, I think the former employees of A can be excluded because there date of hire with A would be the date of the acquisition.