Plan sponsor becomes CG later in the year

Hi

This is a first for me.

Existing calendar 401k plan with Corp A. Becomes CG in November with Corp B

Corp A has a 401k plan with eligibility of age 21/1year of service with 1000 hour requirement

Corp B has a 401k plan with eligibility of age 21/3 months of service.

When will the 2 plans need to be tested together?

How about if each plan passes the 410b and also 401a4 on their own, can they be tested separately? Top heavy issues aside.

What else am I not thinking of or not asking? May be something related to 410b6?

Thank you.

The path forward likely will be uncomplicated, but we all know to take one step at a time.

One of the first things to nail down is how the CG relationship will come about, and then doing some homework on both plans.  Here is a sampling:

• What is the nature of the transaction?  Will it be a stock purchase or asset purchase?
• Are the companies currently unrelated, or is there some level common ownership prior to the transaction?
• Is Corp B plan also a calendar year plan?
• Has it been decided to keep the plans separate after the closing date of the transaction?
• Keeping in mind that 410(b) testing is done separately for elective deferrals, match and non-elective employer contributions, do both plans offer similar benefits with similar eligibility and allocation conditions?
• Does one plan have an ADP safe harbor and the other does not?
• Is either plan top heavy and the other is not?
• Do both plans use/not use top paid group rules?
• Does either plan have outstanding compliance issues in need of corrections?

Essentially, I suggest comparing both plans across all levels of design and operational compliance to see where there are mismatches.

If you find some, the earlier you can point them out to your client, the more time there is to develop strategies for a clean transition.  It also will be beneficial to inform legal counsel working on the transaction so that nature and timing of plan-related actions are taken timely.

May your path forward be clear and uneventful.

This may be helpful

https://www.asppa.org/sites/asppa.org/files/PDFs/GAC/ASAPs/04-07.pdf

https://ferenczylaw.com/article-the-elusive-irc-section-410b6-transition-rule/