Merger Money Purchase Plan into Profit Sharing Plan

[Guest jpetrancosta]

The Plan Sponsor has adopted a resolution to merge the MPPP into the profit sharing plan, the assets in the MPPP would be transferred to the profit sharing plan and then the MPPP would be terminated.

The notice provided to the participants stated that the MPPP will terminate and all benefit accruals will cease.

Q1. Do I have a merger or termination?

Q2. Since the notice to the participants states termination, are they 100% vested?

Q3. If it's a termination, can the employer mandate that the assets must be rolled into the profit sharing plan, or does the employer have to provide the distribution options provided for under the MPPP Plan Document?

Q4. If it's a merger, same question as above?

I've read other related threads, but remain unclear as to the answer.

[mbozek]

The plan sponsor should retain counsel to answer these questions (or ask counsel who represents the employer why the MP plan was deemed to be terminated). If the participants have been notified that the plan was terminated then it seems likely that the MP plan has been terminated and participants are 10% vested. Benefits will have to be distributed under the annuity options required for a mp plan. The question is why was the MP plan terminated??? A MP plan can be merged into another plan without the requirement that it be terminated.

[Guest jpetrancosta]

Thank you.

I believe the intent was for it to be merged. I think the notice that went to the participants misstated what was to happen. Can the employer still give the employees the option to roll their money into the PS plan, and since the termination date is still a week away, can we send a new notice to the employees stating the plan is to be merged? I know we might have to move some of the dates.

Lastly, aside from the 100% vesting, which the is not a big issue to the employer, I would think a termination would be preferrable. We wouldn't have to worry about the anti-cutback rules or any possible unknown taint to the MP.

Under a termination, the plan could still allow for a rollover to the PS if both plans language allowed. - True?

Under a merger, if we provided for a direct transfer, we would not have to keep the annuity option in the PS plan. - True? Although, I'm not clear on how this works.

This landed on my desk yesterday and the termination date is set for June 14. Notice to participants was dated May 24.

[mbozek]

The questions you ask are fact based and require the review of the plan documents, termination notices and applicable law so you need to consult with counsel asap. If the mp plan is being terminated, is the sponsor going to file a 5310 ? You should also go back to the counsel/consultant/ tax advisor who prepared the documents and pose your questions to him or her. If the MP plan is terminated then the accounts can be rolled over to another plan provided that spousal consent is provided. The annuity opotion would have to be preseved if tahe assets of the MP were merged with the PS plan.

[Blinky the 3-eyed Fish]

Mbozek, I know you are a lawyer, but enough with the counsel. In the small plan market, which consists of a majority of the plans, it would be more expensive to "retain counsel" at every whim, than it would otherwise if audited, barring a plan disqualification.

Jpetra, you say the employer is not concerned with the vesting issue. So, just go forth with the plan termination and provide for distributions as such, including the option to roll over monies into the profit sharing plan.

[Guest jpetrancosta]

Thank you - Both.

[Guest merlin]

Also bear in mind that if you terminate the MP plan it will need its own GUST restatement,separate and apart from the PS plan restatement. If you merge the two plans only the surviving plan needs to be restated.Is this a material consideration?

[Blinky the 3-eyed Fish]

Merlin, I would find it more difficult to incorporate the provisions of two plans within one restatement than to restate two documents. In fact, with my volume submitter document provider, I would be practically rewriting the document with all the special language I would need.

[pjkoehler]

jpetrancosta: An employer's merger of the MPP into the PSS will require scrupulous planning in light of the requirements of Code Sec. 411(d)(6) with particular regard to avoiding the elimination of optional forms of benefit. Furthermore, since the merger presumably involves the cessation of benefit accruals under the MPP, it also requires compliance with employee notice requirements of ERISA Sec. 204(h) and Code Sec. 4980F.

[Guest merlin]

Blinky, you're right. There are a lot of i's to be dotted and t's to be crossed.I didn't mean to give the impression that it would be easy.But it can be done.

[Guest jpetrancosta]

pj

I've informed my boss that at this point a termination is the best route. That was the notice they gave to the participants, and the best way to proceed.

To everyone:

I thank you all for help and insight. I've only been on this sight for 2 weeks but have received great input to numerous questions. I look forward to the day I am comfortable enough with my replies to return the favors.

[E as in ERISA]

Watch for a ruling to be published soon on the subject of a merger of money purchase plans into other DC plans -- addressing the issue of whether it is a partial termination and what notices are required.

[KJohnson]

It just came out today. Rev. Rul. 2002-42

http://www.corbel.com/include/irspdf/rr2002-42.pdf