Rollovers from Profit Sharing Plan into DB Plan

[dmb]

A client that consists of 3 owners and no other employees currently has a self directed profit sharing plan. They are going to start a DB plan effective 1/1/2004 and not contribute to the PS plan. If they merge the PS into the DB, can the PS money still be self directed in the DB plan?? Thanks.

[david rigby]

Why bother? Leave the PS plan as is, with future contributions reduced.

[mbozek]

If the PS plan permits separate accounts why not just terminate it and roll the funds to IRAs where each participant can direct investments? Or if one or more participants has an outstanding loan just continue the PS plan until the loan is paid off? Why bother with the complexities of maintaining separate accounts in a DB plan? Aslo if the PS plan is continued the partners could make discretionary contributions in future years if there is spare cash.

[Mike Preston]

While it may not be efficient, or wise, the answer is yes, it can be done. Probably more cost than it is worth, though.

[mwyatt]

Here's a thought: convert the PS plan to a 401(k) plan. You stated that the only participants are the three owners with no other employees, hence ADP test is inapplicable. Your 3 owners can then, in addition, to the DB plan, "defer" salary under the 401(k) plan for additional contributions without impacting deductibility under 404 combined plan deductibility limits. With the increases in the 402(g) limit to $13,000 plus the $3,000 "catchup" for 2004, these additional numbers might justify keeping the PS plan open for 2004.

[dmb]

Thanks. Actually, i had already planned on adding the 401k feature, but had been a little slow regarding the PS accounts. Thanks.

[Guest Peter Buck]

Can I add 3 new questions? Can a db plan accept a direct rollover from a profit sharing plan? From an IRA? An IRA rollover that is not a direct transfer?

[mbozek]

yes but the rollovers must treated as seperate account under the DB plan. Why not just roll the amounts to the IRAs and let the participants direct their own investments?

[Guest Peter Buck]

Thanks. I'm aware of the separate accounts/accounting. I have a fuzzy remembrance of a problem or some special hoops to jump through to roll over from a dc plan to a db plan, and I was hoping someone could steer me to that issue.