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New Gov't 401(k) for Rural Cooperative--Combine with Gov't 401(a) MPPP


lkpittman
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I have a water/mutual irrigation (gov't) company that is moving ahead with establishing a new 401(k) plan under the new 501©(12) rules, but now they want to know whether then can combine the plan with their existing 401(a) Thrift Plan. The Thrift plan is a money purchase pension plan set up to provide for 10% contribution after mandatory 4% employee contribution. This scares me, because generally MPPPs aren't allowed to have CODAs; however, can this CODA be included with the MPPP in this case because it is a "rural cooperative plan" under the new 501©(12) rules? HELP!!!!

LKP

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Yes, a rural cooperative's 401(k) plan not only can but must be a money purchase pension plan if the rural cooperative does not have a grandfathered 401(k) plan. Code section 401(k)(1) reads as follows:

A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement.
Thus, although most employers can have a 401(k) arrangement only in a profit-sharing or stock bonus plan, a rural cooperative can have one in the context of a pension plan. Moreover, the definition of a "rural cooperative plan" is
any pension plan--

[*]which is a defined contribution plan (as defined in section 414(i)), and

[*]which is established and maintained by a rural cooperative.[/list=1]

Thus, only a pension plan, not a profit-sharing or stock bonus plan, can be a rural cooperative plan. Since a state or local governmental entity that does not already have a 401(k) plan cannot start one, a new rural cooperative plan would have to be a money purchase pension plan.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Carol--thanks for the input, BUT, this WILL be a new 401(k) plan--we have determined that the entity is a rural cooperative because it is a "district organized under the laws of a state as a municipal corporation for the prupose of irrigation, water conservation or drainage" under the new 401(k)(7)(B) (TRA '97) rule. So, we are actually setting up a NEW 401(k) for them (I had inquired about this new exception in an earlier thread. Does this change your answer? Can the CODA be a part of their existing MPPP?

Your input is greatly appreciated!

:confused:

LKP

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It's the very fact that it is a new 401(k) arrangement that means it must be a money purchase plan. It could either be added to their existing money purchase plan, or adopted as a new money purchase plan. If it were old enough to be grandfathered, it would have to have been a profit-sharing plan, unless it were old enough to be a pre-ERISA money purchase plan.

Don't ask me why rural cooperatives are required to format their new 401(k) plans as money purchase plans, while everyone else is forbidden from doing so! :confused:

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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