MP Merged in PS Plan

[pbarrett]

We have several 12/31 paired mp & ps plans that our clients would like to merge into one plan. Assuming the joint life and vesting subjects are not an issue and we complete the merger paperwork correctly by 12/31/01, how and when do the funds need to be combined? I am assuming we can update the mp with the gatt provisions and merge into the ps by 12/31/01 and we'll be ok there on paper, but what about the assets. Most of our mp clients don't contribute until the last minute, which will be in Sept 2002. Should the funds be combined on 12/31/01 and then when the contribution receivable arrives simply allocate it to the appropriate participants-- or should we combine only on paper and move the assets in 2002 after the contribution posts to the mp? Bottom line, does the mp money need to zero out of the trust by 12/31/01 to avoid restating the entire plan?

Any feedback or suggestions would be appreciated!

[Guest TAG]

Order the IRS session cassette tapes from the DC ASPA conference..they addressed your questions and are about $10. Straight from the horses mouth!

[jaemmons]

The answer at the ASPA conference was a little "wishy washy" since there seemed to be a difference of opinion with respect to whether the funding of the MP after the assets were merged,

constituted a funding deficiency to the MP for the last plan year. Normally, I would freeze benefits prospectively so there wouldn't be any more problems with minimum funding amounts and merge the assets once the final funding amount has been made.

[AndyH]

I agree there was some ambiguity in the discussion, but I went away with the impression that funding the MP into the PS after the merger was perfectly acceptable.

What I wasn't completely clear on was the timing of the movement of assets, i.e. can you "deem" the MP assets to be PS assets as of 12/31/2001 by merger resolution or does there have to be an account liquidation.

And by discussion I'm referring to the IRS Q&A general session.

[jpod]

Andy H:

I was not at the ASPA meeting.

Let's say the MPP and PSP are 12/31 plans; the MPP is merged into the PSP as of 12/31/01, and the assets are in fact consolidated as of 12/31. There is no intention to avoid the MPP contribution for 01.

If the contributions for 01 are made in 02, is the MPP contribution for 01 deductible above and beyond the 15% PSP limit, or is the MPP contribution counted towards the 15% limit because as of 12/31/01 there was only one PSP? From your previous post it sounds like you still get the separate MPP and PSP deduction treatment, but I wasn't sure what the IRS speaker(s) may have said. (Note: this is important to the employer because by merging 12/31/01 it has to file only one 5500 and pay for only one CPA audit for 02, whereas it would still have two plans in 02 if it merged as of 1/1/02.)

[AndyH]

jpod, you have stated it exactly as I understood the discussion. That part of the discussion seemed clear to me.

Separate 15% and 25% limits, no further fees from plan 1. I agree with TAG's suggestion to obtain the tapes, however, and I'm referring to the General Session IRS Q&A. TAG may have been referring to a different session that I did not attend, although it sounds like the same answers were given.

Also, remember that the MP plan must be updated for GUST before year end, or they stated that you could somehow reflect the needed GUST MP language when you later amend the PS for GUST, but it's not at all clear to me how this would work or be practical.

[Guest SteveR]

I agree that the plans should be merged effective the last day of the plan year. This will allow for the combined 25% tax deduction for the final plan year. The final 5500 for the MP couldn't be filed until the plan was funded, but whether the contribution is deposited to "PS" or "MP" assets should not be relevant.

I believe that how the assets are handled has nothing to do with the plan merger. No liquidation or transfer of assets is necessary to consumate the plan merger. This may be done for administrative ease, investment management or any number of other reasons as there is no requirement to have plan assets in only one place. I would remind you to change the name or ownership of the assets to reflect the proper trust and trust ID.

The challenge I see is zeroing the assets on the 5500 for the MP at plan year end. Showing the transfer of the investments is no problem, but if the MP is not funded prior to PYE, it looks like I would have to show a receivable and an offsetting payable to the PS (I try to avoid liabilities on the 5500). Is this the ticket?

[jpod]

Steve R:

Your comment about the MPP receivable is interesting, but it seems to me that there is no MPP receivable at year-end because the MPP no longer exists - the receivable becomes an asset of the PSP as of year-end as a result of the transfer of assets and liabilities to the PSP. Therefore, as of 12/31/01 the MPP's 5500 shows assets of $0, in which case there is no 5500 due for 02.

Do you or anyone else feel differently about this?

[AndyH]

Good point, especially if you file the 5500 on a cash basis. But, then again couldn't you change to a cash basis?

[Richard Anderson]

AndyH,

I don't understand the relevance of whether the plan is on cash or accrual. As of 12/31 all assets of the MPP now become assets of the PS plan, including the MP contribution receivable.

Why would an accrual plan have to change to cash?

[AndyH]

Yes, I guess you're right. Not necessary. I agree. You just might be showing a $0 contribution to the MP plan if you don't pick up a receivable, but I guess that's not a problem.

[wmyer]

Any thoughts on how to fill out the 5500 Schedule R, if the plans merge 12/31/2001 and the receivable contribution is made to the profit-sharing plan in 2002? Specifically, what would you put down for the required and actual contributions in 6a, 6b and 6c? If the entire pension contribution is made to the profit-sharing plan, would you make the required contribution equal $0.00, even though the formula calls for a contribution? Would you file a Schedule R at all?

[Guest SteveR]

Richard and Jpod,

I agree with your responses. Any receivable, cash vs accrual, are toast after the plan merger. Everything becomes a paper asset of the PS. My original maniacal meandering stemmed from trying to rationalize stating on the 5500 that the final deposit for the MP happened on 9/15 when the plan shows no receivable as of PYE.

However, after proper cafeinization (sp?), I can accept that satisfying the minimum funding standard does not require that the receivable be attached to the MP.

[John A]

Would most of these issues be avoided simply by freezing the money purchase plan prior to 12/31/01? Or are these situations where the employer wants to put in 25% and could only put in 15% if the money purchase plan is frozen prior to 12/31/01?

[jpod]

In my case, the contributions for the two plans, in the aggregate, will exceed 15% of covered compensation in 2001. The employer does not wish to avoid the MPP contribution. The sole reason for merging the MPP into the PSP is to simplify administration (i.e., reduce the cost of administration). The sole reason for merging before 1/1/02 is to avoid an extra 5500 and an extra ERISA audit.

[Guest merlin]

Once the merger documents have been signed and the assets have been retitled,and assuming identical BRFs in the merged and surviving plans,is there any reason to maintain separate participants' accounts for the pre- and post-merger dollars? Different BRFs (notably the J&S in the MP plan) would mandate separate accounting,but if everything is the same before and after it would seem like a needless complication

[jpod]

No reason to maintain separate accounts in my case. The only difference between the two plans is that the J&S is not mandatory the PSP. However, the principals of the employer in question really don't give a hoot about the J&S requirement, so we'll end up making the entire plan subject to the J&S rules. This will happen automatically if we don't maintain separate accounts (and we don't intend to) under the "transferree plan" rules. As far as I can tell, the J&S "transferee plan" rules would trump any 411(d)(6) problem which you could conceivably have by suddenly subjecting PSP money to spousal consent rules. In other words, prior to the merger, the participant would not need spousal consent to select a form of benefit distribution; now, after the merger, he/she would need spousal consent to elect something other than a J&S. While this may sound like a 411(d)(6) problem, that does not appear to be the case.

[Guest merlin]

Great response.Very helpful. thank you very much.

[KJohnson]

I have heard Wickersham say informally that he does not see a 411(d)(6) issue in adding QJSA provisions.

[Lynn Campbell]

Corbel addresses this issue on its web site and even has sample documents to use. See "Merging/Terminating Money Purchase Pension Plans as a result of EGTRRA". They mention that an ERISA 204(H) notice is required to merge the MP into the PS. What is the timing of the 204(h) Notice - is it still 15 days prior to the date that accruals are reduced?

[Guest merlin]

Corbel's opinion is that separate acounting is required. Read it and weep. Sorry jpod,I was reading your answer in what was to me the most advantageous way.

[jpod]

Merlin, I don't think CORBEL intended for its summary to be interpreted in the way you are interpreting it.

I think what CORBEL was trying to say is that you have to account for the old MPP money separately if you do not wish to be forced to make the entire plan subject to rules that would satisfy the rules for a MPP. Alternatively, you may have to maintain separate accounts if there is a feature of the PSP which you cannot take away (such as an in-service distribution option), but which is inconsistent with the MPP rules. However, if neither issue is a problem, there is no need to maintain separate accounts post-merger.

Does anyone out there in Benefitsland hold a different view?

[Guest merlin]

jpod-I think we're in agreement, but just to be sure:

1.A ps plan that is already subject to J&S rules and has no other provisions that would not be allowed in a mp plan-there is no issue of separate accounting.

2.A ps plan that is not subject to J&S,but otherwise does not conflict with mp plan rules-either add the J&S to the ps or maintain separate accounting.

3.A ps plan that has provisions that cannot be accomodated in a mp plan-separate accounting will be required.

[jpod]

I agree that we agree.

[John A]

The Corbel article specifically mentions that plans merged 1/1/02 will retain the 25% deduction for 2001. Does this mean plans merged 12/31/01 will NOT maintain the 25% deduction limit, and must use the 15% deduction limit for profit sharing plans?

Also, does anyone have a response to wymer's question about the Schedule R for the money purchase plan's final 5500?

Finally, Lynn Campbell, the new timing of the 204(h) notice has not yet been determined since it will be in "regulations to be issued" that have not yet been issued. So it seems that we are in a "good faith" situation, and I would guess that 15 days would be a pretty safe "good faith" guess until regulations are issued.