“We have confirmed that we are eligible for the transition rule where we are deemed to satisfy the 410(b) coverage and 401(a)(4) general nondiscrimination testing through 2015 (the year following the year of the merger).This transition rule is of great help to us, since the retirement plans of the hospitals have disparate benefits and it will take some time to reconcile this issue.
“However, is the average contribution percentage (ACP) testing subject to the transition rule as well? Our hospital sponsors an Employee Retirement Income Security Act (ERISA) 403(b) plan with employer match contributions, and we normally run the ACP test for the matching contributions each year, since we are not a safe harbor plan. The hospital with which we are merging does not have a match. Other than the change in the name of the plan sponsor to reflect the merger, nothing has changed in our 403(b) plan as a result of the merger. How is ACP testing affected, if at all? The merger took place mid-year, so do I need to perform two separate tests. Our plan year is calendar.”
Michael A. Webb, vice president, Cammack Retirement Group, answers:
Excellent question; and the Experts are glad you are paying attention to the often-overlooked impacts of mergers and acquisitions on retirement plan nondiscrimination testing. The answer to your question lies in the differences between ACP testing and 410(b)/401(a)(4) testing. Unlike 410(b) coverage and 401(a)(4) general nondiscrimination testing, which takes into account all of the retirement plans of a controlled group, ACP testing is plan specific. Thus, the plan formulas of other hospitals in the controlled group have no impact on the ACP testing the plan of a specific hospital within the controlled group. Also, since ACP testing is plan specific, the transition rule for mergers and acquisitions would also not apply, since that transition rule provides relief for controlled group testing and ACP testing does not factor in other members of a controlled group.
Thus, you should proceed with normal ACP testing for the full 2014 plan year. For more details, see Revenue Ruling 2004-11.
Thank you for your question!
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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