Acquisitions and Testing

Company A acquires Company B 5/1/2017.  Company B's retirement plan is merged into Company A's effective 5/1/2017 and the Company A plan is amended to credit Company B employees with eligibility and vesting service for time worked at Company B (which had not been a related employer). 

Can Company B people be treated as otherwise excludable employees for testing purposes for 2017 (based on real hire dates of 5/1/2017)? 

Can Company B be excluded for 2017 testing purposes by using the acquisition transition rule?

If Company B is tested separately under the transitional rule, would the employees count in the top paid group determination?

I think your question is does  the fact that company A is crediting prior service with company B somehow prevent the use of the transition period rule for testing purposes.  I don't believe so.  As long as the plan was meeting the coverage requirements immediately before the merger, and the coverage is not significantly changed during the transition period, then the plan should be able to take advantage of the transition period and the plan will be deemed to satisfy coverage for 2017 and 2018.  

You can run separate ADP/ACP tests for each  company.  As far as your question on whether the Company B employees should count for the top paid group determination, there is some lengthy discussion about that in the ERISA Outline Book.  The bottom line, however, is  that the IRS has not issued formal guidance on this question.  The EOB notes that it would be reasonable to apply the top paid group rules separately to each respective workforce, so that a separate 20% is determined for each company.   

Thank you for your comments.   From what I've read, so far I agree on both points.

On ‎7‎/‎30‎/‎2018 at 8:50 AM, AndyH said:

Company A acquires Company B 5/1/2017.  Company B's retirement plan is merged into Company A's effective 5/1/2017 and the Company A plan is amended to credit Company B employees with eligibility and vesting service for time worked at Company B (which had not been a related employer). 

Can Company B people be treated as otherwise excludable employees for testing purposes for 2017 (based on real hire dates of 5/1/2017)? 

I remember a question like this at one of the ASPPA DC Q&A sessions years ago.  The IRS representative's response was that you needed to be consistent in treating the credited service. If you counted it for eligibility, you needed to also count it for determining otherwise excludable.  I've looked through my prior years of ASPPA stuff, but haven't been able to find it and don't remember which year it was.