PS Assets Merged Into DB Plan

[Guest MProctor]

Can assets from a profit sharing plan be merged into a defined benefit plan? It appears that based on Reg. 1.414(l), this is a possibility. It states the following:

"In the case of a merger of a defined benefit plan with a defined contribution plan, one of the plans before the merger should be converted into the other type of plan (i.e., the defined benefit converted into a defined contribution or the defined contribution converted into a defined benefit)..."

How should this conversion be done?

In addition, what reporting is required? Would the plan still be eligible for the exceptions for the Form 5310-A under the merging two or more defined benefit plans?

[AndyH]

I guess, but as a practical matter, this would make little sense. You would need to retain all of the defined contribution features of the PS plan, i.e. the investment risk and reward. You could perhaps do this and retain the PS money as separate accounts such as rollover contributions would be treated, but then what would be the point? What would the objective of this be?

[SoCalActuary]

On the issue of benefit conversions:

You would have segregated accounts in the DB plan, as permitted under 414(k). They are allocated investment returns in a manner consistent with the trust rules. They are treated like a rollover dc account.

At the time of benefit, they are subject to db plan annuity rules, using the actuarial equivalence rules in the document. Thus, they can be annuitized into a monthly benefit under the form elected by the participant.

As an alternative, you could discontinue the dc administration issues if your plan provides that the dc accounts are converted into additional db monthly benefits at the time of the merger. The document would have to address this, participants might have to get election forms, and spousal approvals may be needed. Essentially, this would be the equivalent to the rules in gov't plans that allow buy-in for additional service years.

I believe you must file the 5310-a before the merger, although I haven't checked the rules lately.

[AndyH]

I don't think that you could merge and discontinue the DC features through election forms. In such case that would consititute a rollover, not a merger. And it would be voluntary, certainly not involuntary. Involuntary would cause a 411(d)(6) cutback or two.