Annuity benefit when merging money purchase and p/s plans.

[Guest Thornton]

With the EGTRRA increase in section 404 limits to 25% of eligible payroll, most companies maintaining both mppp and a p/s plans will be terminating the mppp or merging it into the p/s plan. If the plans are merged, vesting does not need to be increased to 100%, but the account balances retain the annuity option and must be tracked separately. One way to aviod this is to terminate the mppp and distribute the assets. Of course, vesting increases to 100%. While most will roll the distrbution into the pension plan, some won't. This bothers many employers, not to mention the 100% vesting rule upon plan termination.

Question: Is there a way to merge the mppp into the p/s plan and also eliminate the annuity requirement? I swear that I read this somewhere while studying the issue. Did EGTRRA expand the GUST provision? Thanks.

[Belgarath]

Here's my opinion, for what it's worth...

EGTRRA section 645 directs Treasury to develop final regulations to address such issues. Unfortunately, they have until 12-31-2003 to develop such regulations, although they may do it much faster due to the screams and howls from plan administrators!

Absent such guidance, I think you must rely on 1.411(d)(4). This provides that you can eliminate optional forms of benefts, as long as you provide for a lump sum distribution option. HOWEVER,

the amendment cannot apply to a participant who had accrued a benefit while other optional forms were available, if that participant has an annuity starting date which is earlier than the earlier of (1) the 90th day after the date the participant has been furnished with a SOMM explaining the changes, and (2) the first day of the second plan year following the plan year in which the amendment was adopted.

If anyone out there can figure out a way to ignore this requirement, I'd be delighted to hear it!

[QDROphile]

Convince me that you can eliminate the annuity option if it was imported from a money purchase pension plan. I don't think the regulations go that far.

[Belgarath]

QDROphile - I tried to reply, but it didn't work, so I'll try again.

I think you're right. Yet when I look at 1.411(d)-4, Q&A 2(e), it provides the rules for eliminating optional forms of benefits from a defined contribution plan (note that it does not specify profit sharing). I find the whole thing rather confusing, and the more I think about it, the less sure I am!

It appears that you can eliminate optional benefits, but must retain a QJSA benefit for the prior money purchase benefit, because QJSA overrides the provisions of this regulation. Does this jive with your understanding? Any additional thoughts? Thanks for questioning this.

[QDROphile]

I just had a vague recollection that a benefit that was legally required (such as annuity in a money purchase plan) could not be eliminated. I don't think a merger or nonelective plan to plan transfer changes the rule.

[Guest Bob Elgidely]

To further complicate matters, can a money purchase plan be terminated at all if a plan sponsor made nonelective contributions to it in order to render its 401(k)/Profit Sharing Plan a safe harbor plan? Code Section 401(k)(12)(E)(i) implies that you can't.