410(b)(6)(C) - the meaning of "significantly changed"?

[Guest lawdawg]

I have been confronted with a coverage issue regarding a 401(k) whereby earlier in the year the employer acquired another entity. 410(B)(6)© contains a special transition rule for coverage testing in the context of mergers and acquisitions. I notice where it states that employers may take advantage of the special rule if the coverage under the plan covering employees of the newly acquired person is not significantly changed during the transition period. What exactly is the meaning of "significantly changed?" I cannot find any authority on this issue. Any help would be greatly appreciated. Thanks!

[Guest]

I would gather something as follows.

new company is acquired.

but as part of the takeover, 50% of the employees were let go. I would call that significant change.

Usually(?), the population doesn't change much, so that would be insignificant.

I believe what they are looking for as follows:

new company passed coverage on its own. we will give you a free year (or two) on coverage if plan would have continued to pass on its own

[Guest Laura]

I would refer to the substantiation guidelines (Rev Proc 93-41?). I believe that "significant changes" includes demographic changes (e.g. lay-offs), as well as plan amendments that have a material effect on coverage.

[Guest lawdawg]

That is my concern. For example, if you wanted to amend the plan to provide for immediate eligibility (lets say it was 1 year prior to the amendment)for employees, would this constitute a significant change in coverage? My gut reaction tells me it would not but I don't know why I feel this way.

[Guest Laura]

i tend to think you're OK. construing a minor amendment as significant would contravene the intent of 410(B)(6)©. That is, neither congress nor the IRS wants to punish companies for entering into transactions.