401(k) Transitional Rule

Company A acquired Company B - Stock Purchase

Each passed coverage at the time of acquisition. Plan has taken advantage of the Transition Rule. The transition rule ends 12/31/2023.

As of 1/1/2024 the employees under the prior company will know be enrolled in the surviving plan.

Company B will be a participating employer in Company A's Plan.

The recordkeeper of Company B will not liquidate the assets until 1/15/2024. Funds will be transferred to Company A's plan.

Question -

The fact the assets transfer after the end of the transition period does not negatively impact the transition rule - correct?

The transition rule relates to the 410(b) testing and transferring the assets after the end of the transition period should not be an issue.

No, that in and of itself will not effect transition rule testing.

It's just going to be a reporting issue with how you treat it and whether or not a you are going to need a short year 5500 for the 1/1/2024 - 1/15/2024 "Plan Year" for the B Plan. It might depend on if you are using cash or accrual reporting and what date your merger is effective.

It sounds as if the Company B plan is merging into the Company A plan.  Is there a corporate resolution or other similar documentation of the plan merger?  Assuming yes, what was the effective date of the merger?

If the date is 12/31/2023, then the asset transfer on 1/15/2023 is the administration of the plan completing the merger.  If the formal merger date is after 12/31/2023, then there were two plans in existence up to the formal date of the merger.  This scenario would strengthen the argument that the Company B has a short plan year in 2024 along with all of the reporting and compliance requirements applicable up to the date of the merger.

Lou is correct that you should be good with the transition through 12/31/2023, but if the merger is not formally documented or the documentation creates a short plan year, that will be a PITA.

Movement of assets has nothing to do with a short PY.  If the plan merger occurs on 12/31/23, then:

1. There is no Plan B one day later.
2. ALL of the assets belong to Plan A immediately.
3. There is no requirement to liquidate any of the Plan B assets.

I agree if the plan merger occurs on 12/31/2023, but the OP only says 12/31/2023 is the end of the transition period and does not specify the effective date of the merger.  The cautionary point is to make sure the plan has documentation that the merger date is no later than 12/31/2023 and not some date in 2024.

The OP also explicitly says the Company B plan recordkeeper will liquidate the assets (most likely because the investment menu in the Company A plan differ (but we don't know that from the information provided).

I just want to point out that I don't think there's any formal guidance on the 5500 issue, but I believe that most practitioners do take the position that if the pre- or same-day merger resolution says 12/31, then the fact that the actual consolidation of assets occurs after that date does not prevent the conclusion that there was only one plan as of 1/1.