Profit Sharing v. Money Purchase

[Guest PORTE]

We have a DC Plan that is a collectively bargained for Multiple employer union plan. The document states the contribution is based on the CBA. For 5500 purposes, should this plan be called a PSP or a MPP? And, .....is this plan then subject to minimum funding standards whether it is a PSP(because the CBA states their is a specific dollar contribution per hour) or a MPP?

I think the DOL causes more problems with these notices than they are worth.

[JanetM]

Read the plan document and you will know. How is the contribution defined in doc? Just because the CBA sets the amounts paid in that does not make it MPP.

[Guest PORTE]

Janet,

I did read the PD, and I pondered over every paragraph to see it anything else in this document could give me a clue, such as the absense of a QJSA provision, but nothing. You're a bit condescending, don't you think?

The contribution is only defined in the doc as "monthly payments required to be made to the fund by an employer for each hour the participant is paid pursuant to the terms of a collective bargaining agreement." So i say, does this provision mean then that the plan is subject to minimum funding, and not a MPP, or is that even possible?

I don't think that the attorneys that write these union plans really care what the rest of us in the Plan world think. If it doesn't fit into their box, it doesn't work. It's up to the rest of us to figure it out. Hmmm, maybe that's the way we think?

I appreciate any help you can give.

[Guest JKG]

How old is your plan?

Prior to TRA '86 multiemployer defined contribution plans could only be established as money purchase pension plans, the reason being that before TRA '86 there had to be "profits" in order for there to be a profit-sharing plan. Thus, there was no need to state whether it was a money purchase plan or a profit sharing plan.

Many plans established before TRA '86 have since converted to profit sharing plans. Even though those plans are now profit-sharing plans, contributions made before the conversion (and earnings on them) are still subject to the money-purchase pension rules. In order to become a profit-sharing plan, the plan would have to be amended to state that it is a profit-sharing plan. If the plan wasn't amended, then it probably is still a money purchase plan.

If the Plan was established after TRA '86, you would probably have to talk to plan counsel as to how to proceed.

[Guest PORTE]

Thanks J, It is a '99 Plan and you're right, I will probably have to talk to counsel. I don't have alot of confidence in counsel though. I like your thoughts on the progression of the law on MP plans. That leads me to believe that this probably was installed as a PSP. Any little tidbits help here.

[Effen]

I will probably have to talk to counsel

There are a lot of good labor attorneys out there who write pretty crappy plan documents. Don't be afraid to talk to your client and their advisors, you should all be on the same team. Counsel wrote the plan, if it isn't clear to you; you need to talk to counsel so they make it clear. In reality, they are the only one who knows what they intended it to be (MP or PS). You definitely need to talk to them.

FWIW, I thought Janet's reply was right on point and not at all condescending.

[JanetM]

Thanks Effen.

Porte, have you looked at SPD for english version of the plan? Have you looked at prior 5500s to see how they were filed? Have you asked prior TPA or anyone?

[Guest 5500]

First, I am assuming you are dealing with a multiemployer plan and not a multiple-employer plan.

You probably have a MP plan on your hands based on the info you posted. In the multiemployer environment, as you know, the distinction is not as clear as with other plans. Basically, the plan has to designate whether it is a Pension plan or a Profit Sharing Plan in order to be qualified, see 401(a)(27)(B). If the plan document says it is a pension plan, it's a MP plan and is subject to minimum funding standards. And yes, this is a messy situation for a multiemployer plan because you will almost always have delinquent contractors.

[KJohnson]

But, the prospective solution is easy-- you just amend it to become a profit sharing plan with QJSA provisoin. Then the minimum funding/delinquent contractor situation goes away.

[RTK]

My comments. I concur with JKG & 5500. Since TRA-86 (as technically corrected of course), dc plan as matter of tax qualification must state whether it is ps or mp. If not in document. ask the drafter of the doc what it is. The existence of qjsa rules is not the test, since ps plans can use those rules.

If ps plan, plan is not subject to minimum funding standards regardless of CBA provisions. I already fought this battle in bankruptcy court in connection with a bankrupt participant's creditors attempts to seize the participant's account.

Note if plan has been or will be converted from mp to ps, the contributions made while a mp plan will retain their attributes as mp contributions and must be accounted for accordingly (qjsa rules apply; no in-service withdrawals).

[Guest anygig]

I will probably have to talk to counsel

There are a lot of good labor attorneys out there who write pretty crappy plan documents. Don't be afraid to talk to your client and their advisors, you should all be on the same team. Counsel wrote the plan, if it isn't clear to you; you need to talk to counsel so they make it clear. In reality, they are the only one who knows what they intended it to be (MP or PS). You definitely need to talk to them.

FWIW, I thought Janet's reply was right on point and not at all condescending.

Hi, there!

Just so you know, there are also a few of us attorneys that work predominantly with multiemployer plans, and we work very closely with benefits consultants and TPAs, and, as needed, investment advisors, to ensure these plan documents are drafted to be not only legally compliant and correct, but also workable from an administrative standpoint. Further, those of us who work consistently with multiemployer plans spend a lot of time finding ways to be legally compliant in a regulatory world that often does not "fit" the mulitemployer plan world. Labor attorneys are not ERISA attorneys - and they should not be expected to be. However, at least our firm focuses on labor work, but we have an attorney (me) dedicated to ERISA and employee benefits to ensure the multiemployer plans are understood in a way that a labor attorney might not or an ERISA/employee benefits attorney without multiemployer plan experience might not.

The Plan should be clear on its face, and if it is not, perhaps an amendment is needed.