MPP Plan Merger

[Guest benefitsgirl]

I have a MPP plan that has a fiscal year end. Currently the plan does not have employment on the last day - 1,000 hours provision in order to receive a contribution. If I amend the plan before the end of the fiscal year to add this provision, can I reduce the funding in the MPP to zero so that their is no funding requirement for the MPP for the 2002 plan year, and then merge the MPP into the PSP for the new plan year?

[david rigby]

Please rephrase the facts for clarity. What are the requirements to receive a contribution (please don't tell us what it does not have, but what it does have).

Thanks.

[Guest benefitsgirl]

sorry, currently to receive an allocation, the participant only needs to work 1 hour of service, 501 if they terminate employment.

[Mike Preston]

No.

[Archimage]

You can amend the Plan to a zero contribution but anyone that has already accrued the 501 hours for the year still have to receive the required conribution. You will also have to issue an ERISA 204(h) notice on a timely basis.

[Mike Preston]

Since the plan does not have an end of year requirement, if the plan is terminated or frozen now, the requirement is zero hours, isn't it?

[Archimage]

Not that I am aware of. I went back to review some of the applicable rulings on mergers and I cannot find anything that says this. Since everyone has to only work one hour of service, that is currently employed, the only question is the participants that are terminated without 501 hours of service. I can't see why they would be entitled to the contribution if they never accrued the right to it. Then again, IRS does not use logic.

[Mike Preston]

Sorry. I was interpreting your first comment to imply that those who were not terminated were in a categeory where they could receive nothing for the year. I agree with you that as of the time of the freeze or termination if an individual is already terminated and did not work more than 500 hours in the year, that individual is not entitled to a contribution. Do you agree that those who are active as of the date of the freeze or termination, even if they have less than 500 hours are entitled to contribution for the year?

[Archimage]

If they are currently employed, yes. If they terminated before a freeze or termination, no. I do think I understand what you are getting at now. However, I do not think that a merger would qualify as a freeze or termination so this would not apply.

[Mike Preston]

For purposes of 411d6, I think a merger is very much a freeze or termination. Again, you are implying that a merger can be used to prevent these people from receiving a benefit to which they are entitled. I disagree. Perhaps you would like to clarify?

[Archimage]

Do you also think these participants should be 100% vested?

[Mike Preston]

There is no requirement to 100% vest upon a merger from a MP to a PS plan. The IRS just recently came out with a clarification on this very point. Many practitioners believed that it was necessary to 100% vest when a MP was merged into a PS. I wasn't among them, so I'm particularly happy that the IRS agreed with me. ;-)

[Archimage]

Mike,

I personally cannot find any reference or material that would require a terminated participant that has not accrued a benefit at that time to receive a contribution for a plan merger of an MPP and PSP. Please give me a reference. Thanks.

[Mike Preston]

I don't know whether you are intentionally trying to obfuscate the issues or not. But you seem to be doing an awfully good job, nonetheless! I don't know, maybe it is we rather than you. No matter.

I'm not saying that an individual that is terminated with less than 501 hours at the time that the plan is merged would be entitled to a benefit. If I implied that, I take it back.

Now, will you take back your implication that there are are potentially some active people who would not be entitled to a benefit?

[Archimage]

Hehe, Okay. I think we are both in agreement, we are just saying it in different ways. And yes, I take back any implication regarding active participants. I hope we did not confuse the starter of this thread too much.