3 Entities 3 Plans want to merge

We're being asked to takeover and merge 3 separate plans.  Entity A purchased entities B&C during 2023.  Entity A participates in a PEO 401k Plan.  Entities B & C each maintain their own safe harbor 401k, with different safe harbor formulas.  Entity A's plan is also SH.  We are told it was a stock purchase (B&C are LLCs) and nothing has been done with these plans until now to bring them together.  They have been maintained and each have separate TPAs.  Since they are all owned by the same owner now we intend to merge the plans effective 1/1/26 sponsored by Entity A and with entities B&C as participating sponsors.  Am i missing anything?  Any reason this can't be done?  We're waiting until 2026 because of the issues that would be involved with a mid-year change to safe harbor plans.

If the transaction happened in 2023, your 410b6c transition period ended last December. Will each plan pass coverage, etc in 2025 on their own?

Bill Presson gives you a helpful description of Internal Revenue Code § 410(b)(6)(C)(ii)’s transition period with your stated assumption that “the change in members of a group” happened in 2023 and an embedded assumption that all plans’ years are calendar years.

If a purchase closed on January 1, 2024 (rather than, for example, on December 31, 2023), that might result in a different § 410(b)(6)(C)(ii) transition period.

Lawyers and accountants in deal teams sometimes consider accounting, banking, insurance, securities, employee-benefits, tax, and other consequences that might follow from exactly when a transaction closes. A deal some businesspeople think of as a December deal might have a transfer of ownership timed for January 1.

A practitioner might check the details.

There shouldn't be a legal impediment to merging the Plans (if there is a coverage issue, the client may need to enter VCP to resolve).  Presumably, B and C are going to enter into a PEO agreement with the existing PEO; otherwise, I don't see them permitting the merger.  Note that it is the PEO plan that will be merged into so you will need to seek their approval and will likely to coordinate with them along with the other recordkeeper(s)/administrator(s).

Note, there are rules that limit the aggregation of safe harbor plans with other plans for coverage and nondiscrimination testing.  In all likelihood, you will need to meet coverage in the two SH plans separately for 2025 (i.e., as if both plans excluded all other employees).  Also, check the plans to make sure that they don't cover the other entities by their terms.  You could have some people being covered accidentally in more than one plan.  Last but not least, there are rules about modifying safe harbor plans mid-year.  These rules may prevent you from merging anytime other than the first day of  plan year.  So, in other words, therre is a lot to think about here.  Consider legal counsel (regardless of whether it's me or someone else).  M&A is complex and shouldn't be handled without knowledgeable advice, IMO.

Great advice above.  Please allow me to summarize: Get competent legal counsel! 

P.S. "competent" will probably include "M&A experience".  That counsel will probably be hired by A or B or C, likely not by you.

P.P.S "We" is used in the original post; make sure you are clear with counsel what that means.