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Elective transfer from Gov't 401(a)

Guest NWF

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We are examining allowing the elective transfer of account balances from a local gov't agency's 401(a) Money Purchase Plan to the State Retirement System; the State approached the local gov't agency to participate in the State Retirement System (DB Plan).

The local agency is contemplating mandating that all new employees (as of a future date) participate soley in the State Retirement System and current employees elect either to continue to participate solely in the Money Purchase Plan or transfer their account balances (and future participation) to the State Retirement System (to purchase service credits), or maintain their current account balances in the Money Purchase Plan and participate soley in the Kentucky State Retirement System (and as an inactive participant in the MPPP).

We note that the Money Purchase Plan is on a standard ERISA-type prototype which adds a few issues to the matter (e.g. taking on obligations from which it would otherwise be exempt).

It appears that prohibitions against elective transfers under 411(d)(6) do not apply here, so the elective transfers are feasible at a federal level. We have not yet examined whether current employees opting out of the Money Purchase Plan (and no longer receiving an accrual under that Plan) would constitue an impermissible modification under applicable state and local law of the employee's future pension accrual rights.

Another issue is whether the employees would impermissibly forfeit certain rights under the MPPP if they transfer their account balances to the State Retirement System under applicable state and local law.

Finally, can the ERISA-type plan be amended to delete the nongovernmental plan provisions without running afoul of local or state contract law?

Are we on the right track? Any other issues we have not contemplated?

A note to Carol - your Governmental Plans Answer Book is an excellent resource and it is greatly assisting us in this matter


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