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Corporate 401(k) Plan into a Gov't 401(a) Plan

Guest Lawrence_Groves

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Guest Lawrence_Groves

I have a private C Corp with a 401(k) Plan that was just converted to an agency of the state (Texas). Since the state agency cannot have a 401(k) plan , they want to amend and restate the 401(k) Plan as a gov't 401(a) plan, or create a 401(a) plan and merge the 401(k) into the gov't 401(a) plan. Will either way work?

I have reviewed the message board and have seen this issue in reverse, but not in this direction. Any comments would be appreciated.[/size]

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Guest Lawrence_Groves

This same question was asked to TAG


There is no need to establish another profit sharing plan for a merger. Your thought of amending and restating the 401(k) to a PS plan will work fine. There are no regulations, this is really a design question, and it makes sense since the

employer is also establishing a 457 plan. Just remove the inappropriate provisions relating to ERISAprovisions that do not apply.

In Particular:

State and local governmental qualified plans are exempt from discrimination testing. Internal Revenue Code 401(a)(5)(G) and 410©(2). Federal governmental plans could be subject to discrimination testing if it were not for Notice 2001-9, which postponed the effective date of discrimination rules for governmental plans.

IRC §§410©(1)(A) and 41 l (e)(1)(A) exempt governmental plans from the eligibility and vesting rules of ERISA. The last paragraph of 401(a) lists qualification requirements that are not applicable to governmental plans:

The minimum age and service rules under IRC §410(a) and the minimum coverage requirements under IRC §410(b).

The minimum vesting requirements of IRC §411 and the anti-cutback rule under §411(d)(6).

Top heavy rules. IRC §401(a)(10)(B)(iii).

The joint and survivor rules under IRC §§401(a)(11) and 417.

Requirements for protecting benefits pursuant to a plan merger or a transfer of plan assets and

liabilities, IRC §401(a)(12).

The anti-assignment rule under IRC §401(a)(13), except for QDROs. IRC §414(p)(11).

The commencement of benefit requirements under IRC §401(a)(14). However, the governmental plan is subject to the minimum distribution rules under §401(a)(9).

The protections under IRC §401(a)(15) for the reduction of benefits due to increases in Social Security benefits.

The protections under IRC §401(a)(19) regarding the forfeiture of benefits when a participant withdraws mandatory contributions from the plan.

Rollover rules are the same.

Notice 99-40 creates a deemed pass rule for ADP/ACP testing:

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Guest Lawrence_Groves

However, a merger would would better as you would file a final Form 5500 with the DOL and not get barraged with notices in later years for not filing.

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