Can a contributory MPPP and a 457 plan co-exist?

[Guest]

I have an interesting fact situation. A public school district currently maintains a contributory MPPP for its non-teaching administrative employees (teachers are covered by the state dept of education plan). Eligible employees may defer up to 4% of after-tax pay. The school district will match 100% up to 4% of pay. (This is a very old plan!!)The only investment vehicle is deferred annuities. (I said this was a very old plan.)

The district would like to establish a section 457 plan for the same employee group. Due to back loads, etc. it will not terminate the MPPP. It wants to make the two plans available so eligible employees can participate in one or both.

Has anyone seen an arrangement like this? Can they maintain both? I think so, but would like someone to confirm it. If an employee participants in both plans, does his or her after-tax 4% deferral into the MPPP count against the 457 $8,500 and general 415 limits? Thanks.

[Jon Chambers]

Yes, this type of arrangement is not uncommon, and I have seen it several times. The qualified arrangement does not generally offset the maximum under the non-qualified 457 arrangement, although there could be 402(g) issues if the 4% employee contribution were pre-tax (you indicated it isn't in this case). There also may be 415 issues, but I kind of doubt it given the contribution rates you describe.

Finally, the district should look for a longer term way out of the back-loaded annuity contracts, perhaps by freezing the current investments, offering a no-load future contribution option, and revisiting the decision when loads no longer apply. It's one thing to be held hostage to a provider for a while, it's another to be held hostage forever.

[Guest Thornton]

Assume the school district decides to terminate the mppp. Are the assets eligible for distribution? Under pending legilation can balances, at least the district's contribution, be rolled into the 457? Thanks.

[Jon Chambers]

My read on the new legislation is that transfers from the MPP to the 457 would be permitted in 2002, including a trustee to trustee transfer of the participant after-tax contributions. That begs the question as to whether the 457 plan provider can support an after-tax account, from both an administrative systems and plan document perspective. But the legal side seems pretty clear, assuming George W. signs the bill.