Death of the MPPP?

[Guest bdb]

With the new tax bill being passed, I see that in most cases the MPPP will no longer be needed. The elimination of the 15% deduction limit for P/S plans makes the MPPP obsolete.

How would you get rid of the MPPP (assuming you have paired plans)?

1. Terminate the MPPP

2. Merge the MPPP into the P/S plan

3. Freeze the MPPP and keep it around just in case

I am curioius as to how others are plannig on handling this situation.

[Tom Poje]

in an ideal scenario, make the deposit to the mp on 12/31, and roll all the assets to the profit sharing plan on the same day. File a final 5500 for 2001 and wash my hands of the money purchase.

because of J & S you would have to make sure to track the olf mp balances.

[Appleby]

Take a step back here. It is important that we do not forget that the MPPP is in fact a pension plan. Lets considers some issues: -

A qualified retirement plan (QRP) must be permanent. While this does not means that the plan must remain in existence forever, terminating a plan within a few years after it was established may violate this rule- and could result in plan disqualification

It a MPPP is terminated and roll/transferred to a Profit sharing plan (PSP), the MPPP assets must be accounted for separately- because of the annuity rules that apply to MPPP assets. This is a benefit that CANNOT be taken away.

One option of course could be to freeze the plan, by amending it to a zero contribution limit.

MPPP has not lost its appeal, there was not just one benefit, i.e. that of the 25 percent contribution limit- for example- It also served a means of attracting qualified employees. Tell me, If you were being hired by two firms, both offering identical packages, including benefits- the only difference was one had a PSP and the other a MPPP, which would you choose? Most likely the 'guaranteed' and not the discretionary contribution plan right?

Lets not write-off the MPPP just yet…

[MoJo]

While I agree MPPPs may not be dead, I agree they are less desireable in the current corporate climante. The flexibility of contributions is indeed a big benefit to the corporation, and frankly, Appleby, I've not seen anyone make a decision of employment on retirement benefits - at least not the "qualified" kind.

As for the permanence issue, yes it should be a concern, but the rule is not that it be permanent - just that it was intended to be permanent when it was established. Terminating a plan as a result of a tax law change, IMHO, is justification enough.

[Guest sdolce]

The permanence issue was raised with Dick Wickersham at the IRS Northeast Area Benefits Conference last week. His response was that they very rarely raise the permanence issue and basically not to worry about it.

[KJohnson]

I would generally terminate if you do not have QJSA provisions in your P.S Plan. If you terminate the MPPP and let the participant's have the option to roll to an IRA, take a distribution, or roll to the P.S. Plan, you would not have to preseve the QJSA/QPSA provisions for anyone who rolls into your P.S. Plan. However, some Plan sponsors might have the concern that they do not want their employees to have access to their money.

If your P.S. Plan and MPPP have identical optional forms of benefits and benefits rights and features (including QJSA and QPSA) then it might make sense to merge the two.

As to permanency, that may be a concern, but generally if there are legitimate unforseen changes regarding the benefit to the sponsor of maintainng a plan, I don't think the IRS would push this issue. Since most people have the MPPP up just for 404 limit purposes, I don't think I would be overly concerned on permanency for terminating even a fairly recently formed MPPP.

[actuarysmith]

Another possible scenario where using a MP plan may still be desireable is to cover union employees.

The collective bargaining units normally negotiate for mandatory levels of employer contributions.

[KJohnson]

Of course nothing prohibits you from mandating contributions at a specific level into a profit sharing plan either in the document itself or in the collective bargaining agreement.

In fact many multiemployer d.c. plans have converted from mpp's to profit sharing plan because of the IRS's position on employer delinquencies. Under a MPPP the IRS has said that you must credit the accounts of participants working for delinquent employers (they have not said where this money will come from) while under a profit sharing plan the Service has said that there is no such requirement. Since 404 limits are rarely an issue in this context, the reasoning had been why not just convert the MPPP to a profit sharing plan with mandated contributions. The only thing "lost" is that the funding would not be required under 412, but it still would be required under the terms of the Plan and the CBA.

[Earl]

does the presence of a receiveable contribution prevent the merger of PS and MP plans?

I am wondering if you can merge on 12/31/01 and have the contribution, once determined, be dumped into the surviving PS in 2002. or... does the deposit need to be made.

[Guest TAG]

Don't forget the vesting issue when terminating a plan. If immediate vesting, not really an issue. Something worth mentioning though.

[AndyH]

Just a footnote to this discussion. Remember, target benefit plans are MP plans, and they may thrive under the new law and cross tested regulations.

They work much like "new comparability" plans, but in some cases the required contribution for the rank and file can be substantially less than what would be required under the new comp. regulations effective 1/1/2002. This is because many versions (safe harbor and certain variations) of them are exempt from the gateway rules under the new comp. regulations.

For example, if one HCE gets 25%, a NHCE would have to get at least 5% under a new comparability plan, but would often get less than 3% under a safe harbor target plan, which of course becomes 3% if the plan is top heavy.

Having said that, some if not many targets may actually be replaced by age weighed ps plans, which before EGTRRA were less attractive in many cases due to the 15% limit.

Other than these footnotes, I agree that most MP plans should be merged or terminated, depending upon the impact of the issues mentioned here.

[MGB]

If you merge a MP into a PS; or if you change the MP into a PS (no former PS), do you always have to do 100% vesting? Is there any way to do this with retention of the MP vesting schedule?

[Guest TAG]

My take is full vesting applies. Read 401(a)12.

[Guest Ray Williams]

401(a)-12 only requires 100% vesting if a plan is merged and then terminated. We first freeze the MPPP, and then merge with the PSP. You can either use the PSP vesting( if it is at least as favorable as the MPPP), or retain the old schedule for the MPPP contributions. Remember that you MUST maintain the J & S character of the MPPP funds, if the PSP does not have J & S.

[Guest TAG]

Good call Ray, it appears that the vesting issue (DC plans) is a grey area and after speaking with our document provider they are recommeding your approach. One issue in merging plans is to watch how forfeitures are being handled so as not to be viewed as employer reversion. In other words, don't use mpp forfeitures to reduce employer contribution in psp.

[Guest snk]

Quick question for KJohnson (or anyone else in the know) - can you point me to where I can find the IRS's position on crediting delinquent contributions in the multiemployer context (and particularly with respect to MPPP's)?

Thanks for the help!

[Kirk Maldonado]

TAG:

Full vesting is not required upon the merger of two defined contribution plans, provided the requirements of Section 414(l) are satisfied. Q&A-16 & 18, TIR 1408, October 30, 1975.

[KJohnson]

SNK

There are a whole series of TAMS and PLRs but the best place to look as to the IRS position is in the multiemploeyr plan audit guidelines which can be found here:

http://benefitsattorney.com/cgibin/framed/...gi?ID=10&id==10

Here is the text:

4.72.14.3.5.6 (05-04-2001)

Service with Employer Who Fails to Make Required Contributions

A pension plan (including a money purchase pension plan) under which service credit or allocation of contributions is conditioned on an employer's making required contributions violates the definitely determinable benefit rule for pension plans of Reg. 1.401-1(B)(1)(i). It does this by allowing an employer's actions, in effect, to determine the amount of benefits accrued by its employees. It also violates the requirement that all years of service with the employers maintaining the plan be taken into account for participation and vesting purposes as well. If the plan trustees are unable to collect the full amount owed, the plan may incur an accumulated funding deficiency. See DOL Reg. 2530.210 and Rev. Rul. 85-130, 1985-2 C.B. 137.

In contrast, because the definitely determinable benefit rule does not apply to profit-sharing plans, multiemployer profit-sharing plans may provide that a delinquency in contributions will be allocated only to the delinquent employer's employees. This does not violate the definite allocation formula requirement of Reg. sec. 1.401-1(B)(1)(ii). (Note that IRC 401(a)(27)(B) requires that a plan intended to be either a money purchase pension plan or a profit-sharing plan must be so designated in order to be a qualified plan.)

[Kirk Maldonado]

Appleby:

IMHO, if MPPPs are not dead, they are at least comatose.

Kirk

[Appleby]

So true Kirk

So true!

[Guest snk]

Much appreciated, KJohnson!

If you have a cite to a representative PLR or TAM, that would be great too!

Thanks again.

[KJohnson]

I went back and checked my subject files-- Look at GCM 39271

[Guest snk]

Very very helpful.

Thank you.