Options with frozen MPPP

[Guest DennisT]

Employer has MPPP that has been frozen for several years. During that time forfeitures accumulated from termination payouts because forf. were supposed to be used to reduce. Employer also has 401(k) plan. What are options with regards to the forfeited amounts from the MPP?. Can MPPP be merged into 401(k)? If MPPP is terminated and forfeitures are reallocated, what employee base should be used? Are 401(k) participants who would have normally entered MPPP eligible for forfeiture reallocation? We are trying to avoid a reversion if at all possible.

[Guest mo]

Dennis, I would normally take the position that freezing a money purchase plan is a complete discontinuance of contributions and should have resulted in full vesting.

I don't think there are definitive answers to your other questions. If you went the merger route (which presents a host of its own problems), would it be possible to keep the forfeitures as a separate pool which would still be used to reduce instead of reallocating? I have had this happen before on profit sharing plans and also amended the plan to pay fees out of forfeitures.

[Guest DennisT]

We may be wrong but we have chosen to say that there should not be full vesting because the plan has not been terminated nor even partially terminated. The plan hasn't really affected the participant's right to vest in their benefits.

We had also considered moving the forfeited amounts to the 401(k) and using to reduce there but we were unsure of that. Any other guidance on that would be greatly appreciated.

We discussed your idea of amending to pay plan fees out of the forfeitures but the forfeiture amount is approximately $20k and as much as we would like to, we just can't charge all of that in fees.

We really like the idea of amending the plan to allocated forfeitures as additional contributions but our true problem lies in deciding on the allocation base. Do we have to include those 401(k) participants that would have been in the MPPP if it had been active or do we just use current MPPP participants?

[Kirk Maldonado]

Section 411 requires full vesting upon the cessation of contributions to a profit sharing plan, but not to a money purchase pension plan.

[IRC401]

The plan is supposed to have a definitely determinable allocation formula, and under old rev rulings suspense accounts of forfeitures aren't supposed to build up.

If you aren't willing to vest everything, and if you can't use the forfeitures to pay expenses (assuming that the document permits the payment of expenses), I think that the forfeitures should be allocated among the accounts of active partipants. From my perspective, you have an active plan with a 0% allocation formula. If you didn't freeze eligiblity, new particpants enter the plan each year. Plan permitting, you could delay allocation of forfeitures until the terminating participant has a five year break in service. If I am wrong, then you could let forfeitures accumulate until only 5% owners are left in the plan, and then allocate them.