Changing MPP Contribution Mid-Year

[DP]

I have a client who has a calendar year MPP plan with a 10% contribution formula. It is a standardized plan with no last day rule. Participants must work 501 hours to receive a contribution. The client is wanting to change the contribution to 7% effective July 1, 2001. My position is that he can't do this because the participants have already worked 501 hours this year, and they have "earned" the 10% contribution. Am I wrong, or can the contribution be changed mid-year? Thanks.

[Medusa]

If the plan wasn't a standardized prototype, you could refer to the IRS Western Key District's EP/EO Newsletter (Fall 1998). Their conclusion was that you would have to provide the greater of 10% of compensation through the freeze date, or 7% for the whole year. Not all practitioners take this approach, by the way.

However, my understanding is that with a standardized plan, you must use a 401(a)(4) safe harbor approach for allocating employer contributions. This would require a uniform rate of contribution for the whole year. Thus I believe you are stuck with the 10%.

[Appleby]

A MPPP is subjected to the minimum funding standards. Therefore, unless the employer obtains approval from the IRA, the funding cannot be waived or reduced in mid year. The employer may reduce the funding for the next year, providing employees are given proper notification (the 204(h) notice.). This notification must be provided to employees not less than 15 days , before its effective date.