Plan Mergers/Safe Harbor Election

I have a situation where one company was bought.  Both have plans, one being a safe harbor match plan and the other discretionary match.  They have apparently missed the deadline to merge the plans/make the plans equal with same benefits.  Is it possible to elect safe harbor option for the non safe harbor plan before the end of the year (each plan is calander year) given that the plan is out of compliance or do we need to wait until the start of the next plan year with notifications provided in the 4th quarter?  Any thoughts are appreciated.  

You cannot retroactively adopt a safe harbor matching plan. Despite the fact that the non-safe harbor plan has a discretionary match, the IRS (fairly enough) does not like the idea of allowing plans to retroactively adopt the safe harbor (benefits) with a matching formula after the start of the year since, the participants didn't know that they had a guaranteed, fully-vested match available at the start of the year.

If I understand correctly, you have a situation where a company was acquired and now the employer/related employer group has two plans: a safe harbor 401(k) and a non-safe harbor 401(k).  That, in-and-of-itself, is not an issue.  You can have plans that cover two separate groups, and those plans do not have to have identical features.  One can be safe harbor and the other not.  One is subject to ADP/ACP testing, the other not.  The discretionary match can always mirror the safe harbor match formula.  The employer could probably even make the match as a QNEC (or amend the plan to provide for full vesting) to mirror the safe harbor - if that is the objective.  There rules have a few complications but aren't a major red flag. 

Do you have a specific concern regarding the different benefits/nondiscrimination testing?

No,that answers my question perfectly, thanks!

410(b) needs to be considered as well, no?  Unless the coverage transition period can be used by both plans?

I'll never understand why M&A attorneys aren't sued for ignoring retirement plan issues prior to the transaction date.

Because advice about what to do with retirement plans, and even health and other employee-benefit plans, was not in the scope one’s client allowed.

Or, even was contrary to one’s client’s instructions.

Or, a lawyer advised about what to do with employee-benefit plans, yet the client didn’t follow the lawyer’s advice.

Or, tolerating a retirement-plans exposure was the client’s choice, after considering its lawyers’ advice.

Or, the retirement-plans exposure would no longer belong to one’s client.

Or, one’s client had no choice to make.

There are many ways a retirement-plans exposure can be left behind despite a client’s lawyers having done good or even perfect work.

@Peter Gulia if I can't rant on message boards, where shall I rant?

I think we all like your rants, @Bill Presson, but I believe Peter is concerned about the attitude of - to paraphrase Shakespeare - the first thing we do, let's blame all the lawyers.  (Sadly, that is an improvement on the original version).  😉

BenefitLink is a great forum for venting some frustrations.

And while I wouldn’t describe Bill Presson’s smart observation as a rant, reading and learning from neighbors’ intelligent observations and criticisms is among the reasons I use BenefitsLink.

But we can learn by thoughtfully considering the observations. (My note above is an observation about an observation.)

For a field that involves many professions and special-focus workers—third-party administrators, recordkeepers, lawyers, public accountants, actuaries, consultants, investment advisers, and many others, we can do better by being mindful of other perspectives.

For example, there are many things recordkeepers do that are profoundly frustrating to me and my clients. Yet, by understanding why recordkeepers do it the way they do, I can provide better advice and help my clients manage problems that result from recordkeepers’ business methods.

Just to add a note regarding this issue of merging plans (while sympathizing with everyone's frustration in M&A situations when the M&A attorneys ignore retirement plan implications):  when you are trying to merge two 401(k) plans mid-year, you have to consider that the merger acts as an amendment to the plans.  So, if you have a SH nonelective plan and a SH match plan and want to merge them mid-year, you must realize that the impact of that is to change one of the plans mid-year from one type of SH to another type of SH, which is expressly prohibited under Notice 2016-16.  Similarly, if you have a non-SH plan and a SH plan and you merge them mid-year, either the non-SH plan is being amended mid-year to add a SH provision OR the SH plan is being merged mid-year to terminate a SH provision.  Either way, you must conform to the rules of Notice 2016-16, as augmented by the SECURE ability to do a mid-year adoption of a SH plan under certain circumstances.  So, beware of mid-year mergers.  Better to wait until year end, freeze the acquired plan as of year-end, have the acquired employees enter the buyer's plan as of the beginning of the year, and merge the plans either concurrently or ASAP after that takes place.

Also, in re the coverage issue raised, remember that you likely have the transition period under 410(b) unless you amend the plans in the meantime.

1 hour ago, Peter Gulia said:

For a field that involves many professions and special-focus workers—third-party administrators, recordkeepers, lawyers, public accountants, actuaries, consultants, investment advisers, and many others

Let's acknowledge the value of pre-engagement due diligence followed by a well-written engagement letter.

And for those who want to advise about retirement, health, other employee benefits, and executive compensation challenges that come from a business deal, buy Ilene’s book:

Employee Benefits in Mergers and Acquisitions, 2023-2024 Edition

https://law-store.wolterskluwer.com/s/product/employee-benefits-in-mergers-acquisitions-20232024-misb/01t4R00000PBNhKQAX