Money Purchase Plan needed?

[Guest TrustMe401k]

Company A has an established 401(k) Plan. Has been making PS contributions to paln for years. Company is "dying" (their words not mine) to put in more than 15% this year, preferably the 25% max.

Obviously my first thought would have been MPPP. With EGTRRA it will not be necessary (read, it would be stupid) to implement MPPP.

Issues:

If Company A starts a MP plan for 2001 and then merges the two plans, do we have a problem with the plan not being "permanent"?

Several threads have said the correct date to merge the plans (assuming two exist) would be 12/31. Can I "merge" the plans on 12/31/01 and make all deposits to the 401(k) plan?

Will I need a document for the MPPP? (I think yes but need back-up)

Do I file 5500 for the MPPP for 2001?

I should probably know this stuff, but any and all help will be greatly appreciated. If I have missed any important points that will trip me up, please speak up.

[Guest kowen]

Wow! Are really dying to make a 25% PS contribution? I f so, are they hiring? If you install the MPPP, I'm almost certain you will need a Plan Dcoument. The permanency issue is interesting. Technically, installing a plan with the intention of terminating it right away or stopping contributions would violate the permanency requirement and disqualify the plan. However, I'm not sure anyone would call you on it since you are making the employees better off. I don't think it makes much sense for a company to temporarily install a MPPP just to make an additional ER contribution for 1 year. Their generosity might also backfire if they can't maintain the 25% contribution in the future, resulting in employees perceiving a reduction in benefits. Have they considered paying a bonus instead and just raising the PS contribution next year?

[R. Butler]

I don't see any reason you can't establish a MP plan for 2001 and merge into the PS plan at 12/31/01. You definitely need a document and you will have to file a 5500 for 2001. You should be able to deposit the MP receivable into the merged PS plan.

[david rigby]

Sounds good.

But I'm not so sure that 12/31 is the "correct" date to merge the plans. A january 1 date might give you some more flexibility with respect to when you get the work done. So what if you have to do a 5500 for a short plan year. Is that a burden?