Mergers are great when you’re talking about chocolate and peanut butter. But when you’re talking about merging 401(k) plan assets, it’s not always a smooth combination. Plan mergers, whether due to acquisitions, company restructuring, or TPA transitions, can create an administrative nightmare if the details aren’t handled with surgical precision. As a plan provider, you’ll quickly learn that merged assets and sloppy reconciliation are the kind of problems that turn your clean 5500 into a red flag for auditors and regulators.
The Merged Assets Time Bomb
When two or more plans merge, the assumption is simple: assets from Plan A roll into Plan B, participants and balances are consolidated, and life goes on. But ERISA doesn’t reward assumptions—it punishes sloppiness. If the assets don’t reconcile perfectly, if forfeiture accounts or outstanding loans don’t match, or if there are lingering “ghost” accounts that never transferred, the result is a mess that compounds every year until someone has to unwind it under pressure.
The problem often begins during the transfer process. Custodians send over assets that don’t line up with participant records. Old plan numbers get confused with new ones. Sometimes, participant-level data arrives incomplete or mislabeled, and no one realizes it until the next plan year’s audit. The financial data might look “close enough,” but close enough doesn’t satisfy auditors or the Department of Labor.
Reconciliation—The Lost Art
Reconciliation isn’t glamorous work, but it’s the backbone of clean plan accounting. Every dollar in the trust should have a name, and every transaction should make sense. After a merger, that means going line by line, making sure every asset transferred matches the participant balances and historical data from the predecessor plan.
Too often, reconciliation is left to chance or rushed because “we just need to get the plan live.” But the moment you cut corners, you inherit someone else’s problem—and that problem becomes yours once the audit comes around. When the auditor asks why the trust doesn’t reconcile to the participant ledger, or why the forfeiture balance ballooned from $12,000 to $48,000 with no explanation, “it came from the merger” isn’t an answer—it’s an indictment.
Form 5500—Garbage In, Garbage Out
If you’ve ever heard the phrase “garbage in, garbage out,” it applies perfectly to the 5500. When plan data isn’t reconciled before filing, you’re certifying inaccurate information under penalty of perjury. Think of it this way: the 5500 is the plan’s public face, and if it shows inconsistent participant counts, mismatched assets, or unexplained adjustments, it’s like showing up to court in a stained suit and flip-flops. The DOL notices, the IRS notices, and eventually, participants notice.
Merged plans with unclean data often lead to 5500s that don’t tell the full story. One plan might report prior-year assets that don’t match the carryforward from the predecessor plan. Or worse, the audit notes a “qualified opinion” because the records are incomplete. Once that happens, you’re on the DOL’s radar—and that’s a place no one wants to be.
Best Practices—Avoiding the Merged Asset Mayhem
1. Audit Before You Merge: Don’t just merge assets, review them. Reconcile old plan balances before a single dollar moves. Identify missing data, stale loans, or unallocated forfeitures.
2. Map Provisions Carefully: Make sure every plan feature (eligibility, match, vesting, loans) aligns correctly. A misalignment can lead to operational errors that spiral into disqualification issues.
3. Communicate Between Teams: HR, payroll, the recordkeeper, and the TPA all need to be on the same page. Merged plans fail when each group assumes someone else has “checked the math.”
4. Document the Process: Keep a written record of how the merger was handled—asset transfer confirmations, reconciliation notes, and communication logs. When the auditor asks, “How do you know these assets were correct?”, documentation saves the day.
5. Clean Up Before Filing: Never rush a 5500 just to meet the deadline. Extensions exist for a reason. A clean, accurate 5500 a few weeks late is better than a fast one that triggers a DOL letter.
The Takeaway
As an ERISA attorney, I’ve seen too many “merger disasters” where plan sponsors trusted that everything would just work out. Spoiler alert: it rarely does. Merged assets without proper reconciliation are like uncashed checks and forgotten passwords, they create confusion, liability, and unnecessary exposure.
The lesson? Don’t let the merged plan be your problem child. Get reconciliation right, make the 5500 reflect reality, and don’t rely on hope as a compliance strategy. Because in the ERISA world, merged assets that don’t add up eventually make everyone’s numbers look bad.