What documentation is required to amend Money Purchase to Profit Shari

[Lynn Campbell]

Due to EGTRRA I want to amend an existing Money Purchase Plan to a Profit Sharing Plan, for the calendar year 2002. What documentation is needed? What is the deadline, to avoid a 2002 contribution to the money purchase plan? Document is non-std. prototype with end of year employment requirement. Is 204(h) notice needed?

[Archimage]

Yes, you will have to give the participants a 204(h) notice. You must amend the plan to a 0% contribution before anyone works the required amount of hours to receive a contribution. You will need to get a signed board resolution that states they wish to have the plan amended to a 0% contribution and merge the plan into the existing profit sharing plan. All participants will have to keep their j/s annuity benefits so the MPP assets will have to be accounted for separately unless your PSP assets have j/s rules also.

[AndyH]

The question seemed to be amend the plan into a ps, not merge the plan.

Yes, of course you need the 204(h) notice. It does not have to say the new formula is 0%. It can simply say that there will be no further pension contributions, and that any further contribution will be discretionary ps contributions.

And, now, you can't do this retroactive to 1/1/2002, but if participants haven't earned the right to the MP contribution, that's not an issue.

You need an amendment, board resolution, and SMM or new SPD.

I very much doubt that you could do this with a non-standardized prototype, however.

There is some question as to whether or not you must vest the current account balances. The safe approach is to do so.

And, yes, the plan as amended must preserve the J&S stuff, at least for the MP balances.

[mbozek]

Why not just terminate the MP plan as end of Feb or Mar, send out 204(H) Notice, then get IRS approval and allow all employees to rollover distribution to the PS plan after getting spousal consent. Cost of termination will be worth elimination of J & S annuity provision which is pain to offer since fiduciary must conduct review to find best available annuity provider each time distribution in excess of $5,000 is required and custodian may charge additional amount for separate record keeping of mp plan account balances. Pro rata contribution would be made as of date of freezing plan if such contribution is required under terms of plan and could reduce any contribution to PS plan for remainder of 2002. Termination will require 100% vesting of all accounts. Plan amendment can be signed by corporate officer subject to board consent at a later date.

There was also case law that said an employer was not required to give a 204(h) notice if the employer previously notified employees that plan was being terminated.

Other option is to freeze and merge mp plan into newly adopted ps plan but ps plan must include all of the mandatory provisions required for mp plans (e.g., J & s annuity) and must still give 204(h) notice. See if prototype sponsor will be able to merge mp plan into Ps plan. If plans are merged, vesting schedule for mp plan can be continued after merger. Pro rata contributon can be made to both plans for 2002.