Money Purchase to Profit Sharing (k)

[PMC]

Employer currently has a MPP. Plan year is 10-1 to 9-30. Employer contribution is 3% to be made at the end of the plan year (9-30-06). Employees have already accrued a right to the allocation formula for the current plan year.

Employer wants to establish a 401(k) plan - let's say 5-1-06 (keep the plan year the same as MPP). .

Can the MPP be amended into a 401(k) plan 5-1-06 and make sure that the 3% contribution previously provided by the "MPP" be carried forward in the 401(k) - perhaps via a 3% safe harbor nonelective? Participants won't lose out on the 3% since that will be required under the 401(k). Or, since the MPP is a pension plan subject to minimum funding etc. the 3% must be contributed to the "pension" plan and not to a PSP?

Is the alternative to keep the MPP though 9-30-06, start up a 401(k) as of 4-1-06 with just 'EE deferrals ('ER can't afford to contribute to both plans) and then merge the MPP into the 401(k) as of the end of 9-30-06?

[four01kman]

Your second choice is the cleanest way to accomplish your goals.