Merging of Plan Sources

[Guest KFLETT]

A profit sharing plan has terminated and is merging into a new plan (profit sharing with CODA features) - don't ask me why the first plan didn't just add the CODA.

Regardless, if the profit sharing dollars in the old and new plan are subject to the same vesting schedule, can they be maintained in the same investment account, or is it necessary to keep the sources separate?

[Archimage]

I can't think of any reason why you would need to account for them separately.

[Guest KFLETT]

Other than vesting, or if the plans were subject to different withdrawal restrictions, I can't either.

[chris]

Wouldn't the terminated plan's assets be distributable to the individual participants??? Thus, they would be able to rollover the monies into the new plan and as such those amounts would be tracked as "rollovers". Maybe I missed something in the initial post, but how can you both terminate and merge a plan at the same time?

[Archimage]

Chris has a good point. I was assuming that you meant the plan wasn't necessarily terminating but just merging. If the old plan did actually terminate then we do have a different set of circumstances.

[Guest KFLETT]

The old plan terminated and the assets are being rolled into the new plan - hence "merged".

[Archimage]

Then you would have to do as Chris has previously posted. All participants in the terminated plan must be given the option of rolling over to the new plan or take a distribution. They would also become 100% vested.

This is assuming that a board resolution to terminate the plan was made instead of a board resolution to merge.

[chris]

Upon the termination of a plan the plan participants become 100% vested in their account balances and generally are entitled to those balances unless there is plan doc language to the contrary. I have always advised sponsors to make participants aware that they can roll over to the new plan. This purges any protected benefits/distibution options, etc..

[mbozek]

Terminating the PS plan will trigger the filing of a final 5500 form and the need to file a 5310 form for a determination letter. IRS may audit plans that terminate without obtaining a determination letter. I dont know why the 401(k) feature was not added to the PS plan instead of this convoluted arragement. There is no such thing as a merger with a terminated plan because plan assets must be distributed to participants upon termination but not in a merger. By the way prior to terminaton a ps plan can eliminate all payment options except a lump sum by providing 90 days notice of the eliminaton to participants.