I work in Human Resources, so I don't know all the financial lingo and could really use some help.
Last year on January 1, my company acquired another. We each had a 401k plan. The first few months after the merger, we ran both 401k plans (and were told we could do so until the end of the year following the merger). In revieiwng the plans, we actually liked their 401k plan better, so we worked with their provider to terminate our 401k plan and trasnfer the assets in their plan. We took all of the steps we were told to do, including having a blackout period and informing all of the employees in advance. We sent a termination letter to our 401k provider and to our TPA and they worked with the new provider for the merger of assets. It all seemed ok. I thought the final step in this process was to file the final 5500 for the terminated plan, within 7 months of the termination. Then, later in 2009, to file the 5500 for the existing plan.
However, our auditors are telling us that there wasn't really a merger and we still have 2 active 401k plans. I keep asking what more we could have done to terminate the plan, but no one can give me a response. Was there something more we needed to do? And what can we do now? The auditors won't process either 5500 because the existing 401k provider gave all of the information together and the auditors want it separate as if it is still two plans. Help!
Full Version: 401k merger and termination - help needed
QUOTE (HRDir2009 @ May 31 2009, 11:00 AM) 
I work in Human Resources, so I don't know all the financial lingo and could really use some help.
Last year on January 1, my company acquired another. We each had a 401k plan. The first few months after the merger, we ran both 401k plans (and were told we could do so until the end of the year following the merger). In revieiwng the plans, we actually liked their 401k plan better, so we worked with their provider to terminate our 401k plan and trasnfer the assets in their plan. We took all of the steps we were told to do, including having a blackout period and informing all of the employees in advance. We sent a termination letter to our 401k provider and to our TPA and they worked with the new provider for the merger of assets. It all seemed ok. I thought the final step in this process was to file the final 5500 for the terminated plan, within 7 months of the termination. Then, later in 2009, to file the 5500 for the existing plan.
However, our auditors are telling us that there wasn't really a merger and we still have 2 active 401k plans. I keep asking what more we could have done to terminate the plan, but no one can give me a response. Was there something more we needed to do? And what can we do now? The auditors won't process either 5500 because the existing 401k provider gave all of the information together and the auditors want it separate as if it is still two plans. Help!
Last year on January 1, my company acquired another. We each had a 401k plan. The first few months after the merger, we ran both 401k plans (and were told we could do so until the end of the year following the merger). In revieiwng the plans, we actually liked their 401k plan better, so we worked with their provider to terminate our 401k plan and trasnfer the assets in their plan. We took all of the steps we were told to do, including having a blackout period and informing all of the employees in advance. We sent a termination letter to our 401k provider and to our TPA and they worked with the new provider for the merger of assets. It all seemed ok. I thought the final step in this process was to file the final 5500 for the terminated plan, within 7 months of the termination. Then, later in 2009, to file the 5500 for the existing plan.
However, our auditors are telling us that there wasn't really a merger and we still have 2 active 401k plans. I keep asking what more we could have done to terminate the plan, but no one can give me a response. Was there something more we needed to do? And what can we do now? The auditors won't process either 5500 because the existing 401k provider gave all of the information together and the auditors want it separate as if it is still two plans. Help!
The only thing I can think of that I don't think you mentioned doing was doing an amendment/corporate resolution to terminate the plan. That should be done if it wasn't. What "auditors" are you speaking of, internal corporate auditors or the Dept. of Labor? It sounds to me like if the assets were transferred to the other investment carrier and the proper notices were sent to participants, the plan was amended and the final 5500 was filed, you did it correctly.
Yeah, it's hard to say exactly what's missing, could simply be a resolution as suggested. Since you said you worked with the provider of the acquired company's 401(k), I'd go to them for help.
Also, I'm wondering whether the plan was "terminated" or "merged." If it was terminated, then the participants would have had the right to take distributions from the plan, and I doubt that's what happened. It was probably a merger, and while one plan ceased to exist in its former state, that doesn't mean it was terminated. That terminology could be confusing the auditors.
Finally, be aware that (if you're talking about a CPA audit as needed for the 5500), they don't seem to want to ever say "hey, we're not quite sure what's going on here, what were you trying to do?" They just say "this is the way it is" and make you figure out if they misunderstood something...and something that could be taken care of in a 5 minute phone call turns into an ordeal - more billable hours I suppose. At least, that's been my limited experience.
Also, I'm wondering whether the plan was "terminated" or "merged." If it was terminated, then the participants would have had the right to take distributions from the plan, and I doubt that's what happened. It was probably a merger, and while one plan ceased to exist in its former state, that doesn't mean it was terminated. That terminology could be confusing the auditors.
Finally, be aware that (if you're talking about a CPA audit as needed for the 5500), they don't seem to want to ever say "hey, we're not quite sure what's going on here, what were you trying to do?" They just say "this is the way it is" and make you figure out if they misunderstood something...and something that could be taken care of in a 5 minute phone call turns into an ordeal - more billable hours I suppose. At least, that's been my limited experience.
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