PMC

Reg. 1.401-6 deals with the termination of a qualified plan. Para. (B) defines a termination and states a plan is not considered terminated merely because an employer consolidates or replaces that plan with a comparable plan. 1.381©(11) describes what constitutes a comparable plan. Seems like terminating a MPP to start a Profit Sharing plan (k) would be O.K since they wouldn't be "comparable." But what about an employer who currently has a Profit Sharing Plan ('ER $ only) and wants to terminate it, distribute assets to employees and then start a 401(k? Put the logic of this aside. The 401(k) would seem to be a comparable plan. Would the employer be making an impermissible distribution of those PS $ because the plan wouldn't be considered terminated? Is there any length of time they would have to wait before starting the 401(k), similar to the 401(k) rule for distributing deferrals and starting a successor plan?

Concerned about the accruals and funding requirements under the MPP. Employer with a Standardized MPP wants to amend to a 401(k) effective 1-1-02. The MPP plan year is 5-1 to 4-30. The MPP calls for an ER contribution of 5% of plan year compensation. It seems the employer could amend the MPP plan to change the plan year so that it ends 12-31-01 and fund the MPP contributions to that date and then continue as a 401(k) with the new 1-1 plan year. But the employer would like to keep the 401(k) plan year as 5-1 (coindcide with FY). Could they amend the MPP with a rate of 0% as of 1-1-02 and change to the 401(k) as of that date? The employer could establish a 401(k)effective 1-1-02 with a 5-1 plan year and amend the MPP effective 12-31-01 changing the plan year to 1-1 and with a 0% going forward and then merge the MPP into the 401(k), but they would prefer not to. But is this the best way to do it? Suggestions?

Assume the Simple IRA is to be established 1-1-02?, not 1-1-01. Is a Simple IRA considered a successor plan?

Sponsor of a Simple 401(k) wants to amend to be a "traditional" 401(k). They are not using the Model Amendment (Rev. Proc. 97-9) but have an Adoption Agreement. Can they amend to a traditional 401(k) this year (protecting accruals), or do they have to wait until 1-1-02? And since there's 100% vesting under a Simple (k), do all existing participants have to remain 100% vested going forward, not only in existing Simple contributions, but in the new traditional (k) employer contributions too? There are discussions under the 401(k) section, that indicate the vesting schedule must follow the participant.

If the multiple employer plan stipulates that the contributions from each employer are available only to that employer's employees, then a separate 5500 is done for each employer and it's filed as a single employer plan. Is that correct? What if the plan is an employee deferral only plan? Obviously the contributions made are from that individual employer/employee? Separate 5500? Is there someplace else on the Form or attached schedules that indicate it's a multiple employer plan?

Need some help - If the 403(B) is not considered established by the employer/ERISA plan, and the 403(B) is funded through individual contracts, how does the employer direct a transfer to the 401(a)? And even if the 403(B) is considered an ERISA plan can the employer terminate the plan and make distributions to participants? EGTRRA didn't change the rules to allow trust-to-trust or plan-to-plan transfers from 403(B)s to 401(a)s did it? I thought it was eligible rollover distributions that could be rolled from a 403(B) to a 401(a)? If the participant isn't eligible to receive a distribution from the 403(B),and it doesn't seem as though plan termination is a distributable event, how is it rolled to a 401(a) plan?

If the Plans are merged and there are different Matching and PS contribution allocations under the one plan for each of the 3 companies, then wouldn't you test under 401(a)(4) and BRF across the entire controlled group for each separate Match and PS allocation? And for the ACP, combine and test all of the eligible employees in the plan for the entire controlled group. Top heavy testing and required aggregation aside, if each Plan can pass 410(b)and are kept separate, wouldn't you just test the eligible employees under that particular plan, and not take the other 2 companies employees into consideration for 401(a)(4)?

No corporate transaction between A and B. A and B totally unrelated. B still exists. All of their employees are now employed by A and it just so happens they are performing the same job functions for A as they did for B. Why couldn't this be viewed as a separation from service from B? Benefits Consulting firms A and B are totally unrelated. Consultants for B terminate employment from B and all go to work for A doing the same type of benefits consulting. Wouldn't they have separated service from B and entitled to a distribution from B's 401(k)?

Employer currently has both a Money Purchase Plan and a 401(k) Plan. They use the MPP to satisfy safe harbor requirements for the 401(k) Plan. Plan years are the calendar year. As of 7-1-01 (mid plan year) they now say they only want 1 plan and want to merge the MPP into the 401(k). The MPP requires funding the 3% for all eligible employees for the total plan year's compensation. Can they (maybe should is better) even merge the 2 Plans mid-year without jeopardizing safe harbor status for the 401(k)? Can they fund the 3% nonelective via the MPP up to 6-30-01 and if they do merge, transfer the 3% contribution obligation they had under the MPP for safe harbor, to the 401(k) Plan and still have the 401(k) be considered a safe harbor plan (provided all other requirements continue to be met)? Amendments, final 5500s, 204(h) etc. to be done for the MPP. Change the Safe Harbor Notice to reflect being made to the 401(k) now. Would creating a short plan year for the MPP and the 3% contribution to all eligibles preclude this? Or, too late - must keep the MPP for the remainder of 2001, use it to satisfy Safe Harbor for the 401(k) and then effective 1-1-02 merge the 2 plans and go Safe Harbor strictly via the 401(k). 2000-3 says guidance is being developed but wondering if others have come across this in the meantime.

Had the same question back on 11-30-00 under the 401(k) board and the response was they are participants unless the plan excluded them. That would be an attractive provision in the plan for the IRS to review - "... excluding all employees who are considered to be illegal aliens." I don't know what that employer eventually did.

If compensation for plan purposes is limited to $170k and the participant is putting in 4% of compensation each pay period, how do they get to $10,500?

Tom - your prior post indicates that there must be a separate plan for the people working in Puerto Rico. It would seem based on all the differences in the Puerto Rican Code it would definitely be the prudent thing, but is it a "requirement"? Does anyone have additional information and help with some of these questions or point me to summaries re- Plans covering a U.S. Puerto Rican subsidiary? I understand the Puerto Rican IRC is essentially the USIRC prior to the 1986 revison. Assume separate plans are maintained - 1. Under the Retirement Plan Message Board, it's seems clear that those employees in Puerto Rico are not considered nonresident aliens with no U.S. source income, so they can't be statutorily excluded from the U.S, parent's Plan. The U.S. plan would then have to satisfy 410(b)excluding them. Does the PRIRC have a similar rule in that they must take U.S. employees into consideration, or do they follow the pre-86 US IRC and can exclude classifications and go by the old 70/80 rule? 2. Does the separate Puerto Rican Plan have to file an annual return similar to a 5500? Any form analogous to the 1099? 3. Would transfers be allowed between Plans? 4. If one Trust maintained for both Plans and it is located in the U.S., are the earnings on the contributions made to the Puerto Rican Plan subject to U.S. taxation? If the Puerto Rican and U.S. groups are covered under the same Plan (and the following may be some of the reasons why they shouldn't) - 1. Do you do an ADP for the Puerto Rican group based on the 1/3-2/3 HCEE definition, the $8000 max. (10%) limit on deferrals; and the regular ADP, elective deferral limits for the U.S group. The different definitions of HCEEs could cause some qualification issues with returning deferrals (excesses) when they shouldn't be returned based on USIRC. 2. What about an ACP test - this isn't required under PRIRC. Do you exclude them from the calculation of the U.S. group's ACP? Do you have to do any 401(a)(4) testing of the Puerto Rican group's matching contributions? 3. Does the 401(a)(17) comp. limit apply to the Puerto Rican group? 4. Taxation - for those employees who would work in the U.S. and then transfer to Puerto Ricao (vice versa) would you need to keep contributions spearate based on whether they were made while the employed in U.S. or PR? And earnings always taxed in U.S.? 5. All Plan assets, even those attributable to the Puerto Rican group, are reported on the 5500. Thanks

Bob - don't think looking at the year of service requirement would work here since their intent is to merge the 2 plans anyway and years would have to be credited. But you think that even though the actual "creation" of the controlled group didn't occur until year 2000, the Plan can't default to Rev. Proc. 2000-20 and utilize the transitional rule?

Richard - you posed the question does the Plan allocate forfeitures among all plan participants or only among each respective employer's participants (A to A and B to b). Does 413© allow for the allocation of contributions (or forfeitures) among all of the plan participants regardless of who the employer is making the contribution? If the plan was established after 12-31-88, does 413© only allow a deduction for contributions made by the separate employer and require an allocation only for that separate employer's employees?

Employer A has a 401(k) with employee deferrals only and it's on a Standardized Adoption Agreement, calendar year/plan year. Employer B also has a 401(k) with an Employer Match and is on a Standardized Adoption Agreement, calendar year/plan year. Last quarter of year 2000, A and B become a controlled group but nothing was done to either Plan before the transaction to exclude the other Employer and utilize the 410(B)(6)© transitional rule. So as written, on the date of the transaction Employer A's Plan should have covered employees of B and vice versa. The transitional rule is allowed if the coverage under the plan is not significantly changed during the transition period (other than by reason of the change in members of a group)... Rev. Proc. 2000-20 now allows Standardized Plans to use the transitional rule. Do you think each Plan could 1. "automatically" apply the transitional rule without an amendment excluding the other employer, 2. use the transitional rule but amend each plan to exclude the other entity, or 3. not be able to use the transitional rule even by amending each plan because the plan isn't written to exclude employees thos employees and an amendment now could be viewed as significantly changing the coverage. Incidentally, their intent is to merge both plans mid-2001.

Any comments on safe harbor and plan mergers - Company A (calendar year/plan year) maintains a safe harbor plan utilizing the matching method. Company B (calendar year/plan year) only allows elective deferrals; no employer contributions. They are a controlled group, plans tested separately, all different employees, and now want to merge the plans during 2001; 6-1-01 for example. Would you: 1. Amend Company B's plan to create a short plan year from 1-1 to 5-31 and do an ADP through that period. Then merge the plans effective 6-1-01 and start the safe harbor match for the Company B's employees as of that date (given proper Notice). They wouldn't have been eligible to participate under the Company A plan prior to 6-1-01, so doesn't seem like they would be entitled to the safe harbor match retro to 1-1-01 under Company A's plan for a time when they weren't eligible to participate. 2. Would merging Company B into Company A mean that the Company A plan will now have to give Company B participants the safe harbor match retro to 1-1-01?

Chris, did you get one yet? I have a copy of their base plan doc.and AA.

Richard, that's how I read it but does that make sense? 4 HCEs contribute 5% of their compenation and get a match based on their contribution but the one HCE that makes an after-tax equal to 5% gets matched, Plan passes ACP with respect to the match, but it fails ACP for the employee after-tax because the employee wanted to put in after-tax instead of before-tax. Or is there some reading of the Notices that could be interpreted to say that, the portion of the employee's after-tax that is being matched with a safe-harbor match, doesn't have to be tested under ACP? Sean, is that what you're saying Q & A 5 from 2000-3 says? Isn't that question just referring to bpassing the ACP with respect to the employer match and doesn't deal with passing ACP with respect to after-tax?

Under the safe harbor rules, employee contributions still have to satisfy the ACP test. Suppose a 401(k)plan is safe harbor and the Plan matches employee deferrals and/or employee after-tax up to 5% of compensation using the Basic Matching formula. What if 4 out of 5 HCEEs make deferrals but 1 HCEE makes after-tax only. No NHCEE makes any after-tax. The plan would satisfy ADP and those HCEEs making deferrals up to 402(g) would be O.K. but what about the HCEE who is making after-tax and getting matched on their after-tax? Those after-tax would have to be tested under ACP and since this HCEE is the only one, wouldn't it fail and require a return? What am I missing? Seems odd that is what is intended but didn't see anything specific in 98-52 or 2000-3.

If these plans invloving the transfers called for the reallocation of forfeitures, were any questions raised by the employer/plans re- who they thought should be entitled to the reallocation? Employee A transfers from Plan X to Plan Y and then terminates, vesting applied and forfeitures are reallocated to Plan Y participants. Wouldn't mean much for just a couple of transfers but if there are several over the course of the plan it could be meanigful. Just wondering if this is an issue.

Sorry to resurrect this again - but if the 401(k) included deferrals only, (currently no "employer" contributions), and the plan said that everyone was 100% vested and then the plan was amended to add employer contributions, could the plan now apply vesting schedules to the different employer contribution sources? Or would the fact that the plan simply said you're 100% vested mean that all current participants would have that 100% vesting follow them through the plan? Or, because there never was any employer contributions nor separate vesting schedule attached to them, mean you're not changing any vesting schedule with respect to them, so the plan can include separate vesting for the separate sources? And if it's not a change then the 3 year rule to pick which one wouldn't apply?

Employer establishes a new 401(k) intending to be a Safe Harbor Plan effective 1-1-01. They distribute Notices in a timely manner and indicate the S-H contribution will be the 3% nonelective. It's now learned that their intent was, and the plan was written, to say the Basic Matching formula will be used. Will the wrong information in the Notice preclude them from operating as S-H for the 1-1-01 plan year?

Wouldn't employer contributions make it a Title I plan?

Right - freezing or terminating as of 3-31 (or 3-15) ends the plan year as of that date anyway.

Couldn't there be a possibility that the 403(B) may be an "employer spnosored plan" and is funded via a group annuity contract with the employer as the contractowner and the employer decides to terminate the contract and make distributions to participants? Or doesn't it matter that it is an employer plan - can't distribute 403(B) elective deferrals in this event?