Merging 401(k) plans with different limitation years.

[traveler]

I have a client that will be merging two 401(k) Plans, one of which has a December 31 limitation year end (the surviving plan), and the second of which has a September 30 limitation year end. The merger will take place as of May 31st. Do I need to amend the transferor plan prior to the merger to change its limitation year so it will match the remaining plan? How else would I be able to test for 415 compliance for the transferor plan? Is there written guidance from the IRS on this issue? I know the 415 regulations explain how to change a limitation year. I am just wondering if in a merger situation, is this something that needs to be done.

[Wessex]

I am not certain, as it has been a while since I reviewed the rules on changing a limitation year, but you may have a problem with merging the plans as of May 31 because it seems that you would have two short limitation years for the 9/30 limitation year plan, and I believe that is prohibited. Can the merger wait until 9/30? There is an old Revenue Procedure that deals with maintaining plans with different limitation years (very complicated provisions).

[rcline46]

Merge and be happy. The merger date is effectively a termination date of the old plan, all testing should be to the merger date.

On the survivor plan, treat the merged employees as new entrants on June 1st, test the plan with the new entrants at 12/31. Should not be a problem.

Remember - a merger is a termination of the old plan. You are not maintaining two plans after the merger.

[Wessex]

A merger is not a termination of the plan, although I agree that after a merger there is only one plan.

The original post does not specify whether both plans are currently maintained by the same plan sponsor, in which case the different-limitation-years rules would be currently applicable. I assumed, perhaps incorrectly, that the plan to be merged is a new acquisition, and that those rules would apply if the merger were delayed until 9/30. A review of the regulations regarding changing limitation years would probably be helpful.