Combining MP & PS Plans (Elective Transfer Option)

[Guest Paul Hinderegger]

With money purchase plans effectively becoming obsolete under EGTRRA, many employers that are sponsoring 2 plans (a MP and a PS plan) are interesting in merging the plans into 1 plan. Let's say that an employer's goal are:

1) To maintain only 1 plan going forward;

2) To eliminate the annuity provisions of the former MP money in the profit sharing plan (if the plans were merged);

3) To avoid 100% vesting of former MP money; and

4) To keep leakage (participants taking premature distributions) of the former MP money low.

It seems to me that a plan merger solves issues #1, #3 (maybe) and#4. Termination of the MP plan solves issues #1 and #2. However, what solves all four?

Maybe an employer could utlize the liberalized EGTRRA elective transfer rules and give all participants the option to transfer their MP balance to the PS plan, thus cleansing the former MP money of the annuity rules. Assuming that 95% of the participants actually make this election, that would leave a couple people with balances in the MP plan. Could the employer then terminate the MP plan, make these remaining participants 100% vested and force distribution of these accounts? What potential problems do you see here?

[davef]

I'm not sure that using the new elective transfer rules will accomplish getting rid of the J&S requirements under the MP Plan. Although the Code (as revised) is silent on this, the Committee Report under EGTRRA indicated that "the bill does not modify the rules related to survivor annuities under section 417. Thus, as under present law, a plan that is a transferee of a plan subject to the joint and survivor rules is also subject to those rules." Perhaps this will be clarified by the IRS or Tech. Corrections.