MP to SH 401 midyear

[K-t-F]

Any reason why I can not amend a MP into a SH 401k midyear? (The current plan year is an October year) I dont want to establish a whole new plan and have 2 plans for the current year. I have more than 60 days till the end of the year so giving notice is easy.

If fine then .... will I be required to calculate a contribution for the short year based on income earned till the time the plan is amended... say November -> January 31? And, if it is less expensive for the sponsor to amend the existing MP to a 0% contribution... can I do that at this point in the year?

Thanks!

[jaemmons]

Is the MP a "Pre-ERISA" MP? The final 401(k) Regulations contain the following language to newly established safe harbor 401(k) plans

1.401(k)-3(e)(2)

"...Similarly, a cash or deferred arrangement will not fail to satisfy the requirement of this paragraph (e) if it is added to an existing profit sharing, stock bonus, or pre-ERISA money purchase pension plan for the first time during that year provided that.."

IMHO, I don't think you can amend and restate and existing MP plan (unless it was created before 1974) to be a safe harbor plan during the current plan year.

[Archimage]

I think you are fine to merger it mid-year. You will need to amend the contribution formula to 0% and issue 204h notices. You will have to setup the new 401(k) plan and have a merger document that changes the assets over effective mid-year. You will have other issues if your MPP has participants that have already accrued this plan year's benefit. If you have a last day rule then you won't have any problems.

[K-t-F]

Follow-up info....

Plan is an October year end plan.... Only participant in the plan right now is the plan sponsor. 3 employees will be eligible to participate but are not eligible now.

EE1 enters the plan on 5/1/05

EEs 2 & 3 enter the plan on 11/1/05

204h notice would be given to sponsor himself. A formality but not a big deal.

Amending the 25% MP contribution to 0% can also be done... but he would be required to make a 25% cont on income up to the date we amend the plan? 25% cont based on his income from 11/1/04 -> 1/31/05?

Sum it up... 2 amendments, one to amend cont to 0% and the other to convert to SH 401K w/3% nec. Couldn't that be one amendment with everything included?

Same EIN?... and create letters of authorization to amend the registration of the assets from MP to SH 401?...

Thanks for your help!

[Archimage]

I take it there is no last day rule so the owner has already accrued the contribution. If you only want to base the contribution thru 1/31/05 then you would need to amend the plan year to make a short plan year because your document probably defines compensation as comp for the plan year.

I don't see any problem with the two changes being on one actual amendment.

[K-t-F]

YES... there is the last day rule... must be employed on the last day of the year to receive a contribution... so dont need to amend to 0%?

[Archimage]

You should still amend to zero. You had mentioned basing the contribution on partial year's comp. You will not need to since no MPP contribution has accrued.