“David, this is Juan. I’m a business owner and I just bought out one of my competitors. You’ve been managing their retirement plan and they had good things to say about you so I’m calling to ask for your help. We already have a 401K for our business so do I just terminate their plan and roll all their employees into ours? How does that work?”

“It’s good that you called, Juan. Let me ask you a question. When you did the acquisition, did you buy their stock or their assets?

“The seller wanted to avail themselves of capital gains so the acquisition was done as a stock sale.”

“Juan, if you terminate one of the plans, the employees who participated in that plan will be ineligible to participate in any other 401(k) plan for 12 months! You probably don’t want to start your new employees off by taking away their retirement benefits!”

“Wow! I can see how that wouldn’t make me a very popular boss.”

“We see it happen all the time. Too many companies just terminate their existing plan and the employees wind up shut-out of the new plan for 12 months. Worse than that, most clients are not familiar with this rule and they allow the employees to participate in the new plan without the 12-month wait. What happens? They get audited and the IRS strips the employees of the 401k deferrals for that 12-month period and assess hefty fines on the Plan Sponsor for not administering the plan correctly.”

“So what should I do?”

“As long as you have a qualified Retirement Plan Consultant on your team who understands the process, we can merge the old plan into your existing plan. By doing it as a merger vs. a termination, you won’t be messing up anyone’s 401(k). Didn’t your current retirement plan consulting firm go over any of this with you?”

“No,” Juan replied. “They said it was fine to terminate the 401(k) plan of the acquired company. Sounds like they were not as on top of this as they should have been.”

“And there is one additional benefit to doing it as a merger.”

“What’s that?” asked Juan.

“Your plan assets will be that much larger after the merger occurs so you may be entitled to better pricing from your record-keeping firm. Let’s take a look at the particulars and we’ll get the process started.”


Too many businesses leave thousands of dollars on the table because they don’t get sound advice when they first start up a new retirement plan. Challenge a Professional Retirement Plan consultant to find those savings and set up the best plan for you.