Case of the Week: Time for Managing a Plan Merger

The ERISA consultants at the Learning Center Resource, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Georgia is representative of a common inquiry involving the merger of two workplace retirement plans. The advisor asked:

“My client is working through a business acquisition, which will involve merging two 401(k) plans. He is concerned about how quickly they will be able to merge the plans. Are there guidelines on compliance testing for the plans during the merger process?”

Highlights of Discussion

A special “transition rule” under Internal Revenue Code Section (IRC §) 410(b)(6)(C) applies for meeting employee coverage requirements in situations where an acquisition involves the merging of two plans. Under these rules, the plan will continue to be considered in compliance with minimum coverage requirements during a “transition period.”

The transition period is the period that begins on the date of the transaction and ends on the last day of the first plan year beginning after the date of the transaction. For example, for an acquisition that takes place on Sept. 1, 2017, the transition period that would apply for a calendar year plan would last until Dec. 31, 2018.

The transition rule is only available if (1) both plans satisfy the coverage rules immediately before the acquisition; and (2) there are no significant changes in either the terms of the plan or the coverage of the plans following the transaction.


The merging of two employer plans is a complicated and time consuming process. Fortunately, from an employee coverage perspective, there are transitional rules that give the employer some relief.

APEX 2017_winner 125x130

“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2017, Retirement Learning Center, LLC. Used with permission.

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend