Merging ESOP with Profit Sharing Plan

[Guest Ralph]

A client currently maintains an ESOP as well as a 401(k) profit sharing plan. The ESOP contains a money purchase feature.

I believe the client could merge the two plans into a "KSOP" if they want to contribute the match in stock.

If, however, the client doesn't wish to contribute the match in stock, can they still merge the two plans together?

Also, at this time, thier ESOP forfeitures are reallocated to participants. Are there any ESOP rules which would prevent them from using forfeitures as a credit for plan expenses?

[RLL]

Hi Ralph ---

Why do you want to merge the plans? What are you trying to accomplish? Are you thinking of allowing company stock as a 401(k) investment option?

The matching contribution could be made under the ESOP (in stock or in cash) even if the plans are not merged and the 401(k) plan remains a separate profit sharing plan.

You may want to consider discontinuing contributions to the money purchase portion of the ESOP when the 15% of compensation deduction limit for stock bonus and profit sharing plans is increased to 25% in 2002.

An ESOP may provide for forfeitures to be used to pay plan administrative expenses......but it may be difficult to use forfeitures in stock for this purpose (as it takes cash to pay expenses). Why not just reduce the employer contributions to the ESOP and have the employer pay the expenses?

[Guest Ralph]

The client is thinking of combining the plans for cost efficiencies. Are there any considerations that could negatively impact them if they elect to do this?