New Gov't 401(k) for Rural Cooperative--Combine with Gov't 401(a) MPPP

[lkpittman]

I have a water/mutual irrigation (gov't) company that is moving ahead with establishing a new 401(k) plan under the new 501©(12) rules, but now they want to know whether then can combine the plan with their existing 401(a) Thrift Plan. The Thrift plan is a money purchase pension plan set up to provide for 10% contribution after mandatory 4% employee contribution. This scares me, because generally MPPPs aren't allowed to have CODAs; however, can this CODA be included with the MPPP in this case because it is a "rural cooperative plan" under the new 501©(12) rules? HELP!!!!

[Carol V. Calhoun]

Yes, a rural cooperative's 401(k) plan not only can but must be a money purchase pension plan if the rural cooperative does not have a grandfathered 401(k) plan. Code section 401(k)(1) reads as follows:

A profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of subsection (a) merely because the plan includes a qualified cash or deferred arrangement.

Thus, although most employers can have a 401(k) arrangement only in a profit-sharing or stock bonus plan, a rural cooperative can have one in the context of a pension plan. Moreover, the definition of a "rural cooperative plan" is

any pension plan--

[*]which is a defined contribution plan (as defined in section 414(i)), and

[*]which is established and maintained by a rural cooperative.[/list=1]

Thus, only a pension plan, not a profit-sharing or stock bonus plan, can be a rural cooperative plan. Since a state or local governmental entity that does not already have a 401(k) plan cannot start one, a new rural cooperative plan would have to be a money purchase pension plan.

[lkpittman]

Carol--thanks for the input, BUT, this WILL be a new 401(k) plan--we have determined that the entity is a rural cooperative because it is a "district organized under the laws of a state as a municipal corporation for the prupose of irrigation, water conservation or drainage" under the new 401(k)(7)(B) (TRA '97) rule. So, we are actually setting up a NEW 401(k) for them (I had inquired about this new exception in an earlier thread. Does this change your answer? Can the CODA be a part of their existing MPPP?

Your input is greatly appreciated!

:confused:

[Carol V. Calhoun]

It's the very fact that it is a new 401(k) arrangement that means it must be a money purchase plan. It could either be added to their existing money purchase plan, or adopted as a new money purchase plan. If it were old enough to be grandfathered, it would have to have been a profit-sharing plan, unless it were old enough to be a pre-ERISA money purchase plan.

Don't ask me why rural cooperatives are required to format their new 401(k) plans as money purchase plans, while everyone else is forbidden from doing so! :confused: