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Contributions to Money Purchase Plan


mal

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A building trades union is contemplating a diversion of future contributions from the money purchase plan to their defined benefit plan. The diversion would last 1-2 years and is designed to help support a rehabilitation plan. This would leave the money purchase plan with no contributions (other than reciprocity) for that period of time.

I seem to recall that this can create a problem for the MPP and that the IRS may view such action as effectively freezing/terminating the plan.

Before I spend the time researching this issue, I thought it may be worthwhile to solicit opinions here.

Thanks in advance.

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I do not believe it is an issue. Unlike other DC plans, a money purchase plan is subject to the funding requirements of Section 412. If the plan's formula is amended to zero, then it is what it is. Many years ago, it was vetted that you could actually set up a money purchase plan with a zero contribution formula and use it for purposes of accepting rollovers. I think a zero formula "MAY" be the equivalent of a freeze (which is not necessarily a termination). You may have to provide 100% vesting, but you won't have to distribute assets within 12 months.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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