doctor continues to maintain psp/mpp. Company no longer practices

[Lori H]

a stubborn doctor who lost his self employed practice to Katrina currently works for another doctors group. His practice, not his new employer, has a profit sharing and a money purchase plan. His new financial advisor is trying to get him to term the plans and rollover the assets into a IRA. The doctor contends that he wants to maintain the plans in the case he wants to take out a loan and invest in some real estate. When coaxed to move the funds to an IRA, he states the funds would be subject to creditors. Outside the fact of annual admin fees associated with maintaining the plans, making loan payments, having annual appraisals on land, what other reasons are there that he should really consider terminating these plans? His practice does not exist, so I would think the plans are frozen.

[JanetM]

My thoughts are - MP plan should have been amended to 0% contributions. Plan language may interfere, is there a requirement for him to be "doing business". He doesn't have eligible compensation under his plan. He may not be allowed to take loan. Does he keep business license updated or file any business or tax return?

IMHO I don't see a pressing need to terminate right now. Katrina didn't happen that long ago. He could go up to five years w/o contributions before I would start to worry.

[Lori H]

Well what raised my eyebrows is that he even has two plans. He actually told the advisor that "what does it matter what my practice does, if I wanted to raise cucumbers, why can't I continue the plans". All his employees have been paid out.

[J Simmons]

Does the doctors group he now works for have a plan that would accept rollovers? Does it permit real estate investments and loans?

If so, it would make sense to terminate the PSP and MPPP, and roll the benefits into the new employer's plan (unless there would be other unacceptable restrictions such as on subsequent withdrawal). That would relieve this doctor of all the chores and responsibilities, and potential pitfalls of noncompliance. He'd also be on the beneficiary end of the duty of the fiduciaries of his new employer's plan.

[masteff]

He has two plans because that's what it used to take for a self-employed person to get the full amount set aside each year due to limits that applied by plan. CPA firm where I started out had a dozen or two of doctors set up just the same.

I'm w/ Janet... unless the plans have more stringent break in service rules, I see no reason to rush a change before roughly 5 years of zero compensation have elapsed.

Is there some other reason to rush that we're missing for trying to convince this guy to term his plans? I'm not seeing anything other than IRA transaction fees for the financial advisor.

Here's a thought... has he looked into working for the hospital as a contractor? I once did 5500's on some ER doctors that did that. He'd have to weigh benefits and other perks from the hospital has versus being self-employed again, but then he'd have income that could be used under the plans. Or just to avoid a break in service, another option is if the hospital would let him free-lance, then he could pick up a few contractor hours in a clinic or as an on-site physician for a local business, etc. I'm sure that w/ some thought and effort, he could pick up some self-employment income fairly quickly.

[Lori H]

I'm aware that he maintained 2 plans in order to max out, but you can accomplish that with PSP only now effective what? 2002?

I'll bring up the contractor option to his advisor. As for his plan under his new employer, I don't think he's too keen on the investments they offer.

[wsp]

suprisingly enough there are companies out there that still maintain that MPPP even though it can be accomplished with the psp. I've got one...they say the same thing. If we want to maintain two plans then so be it. Let us be!

I'd say let him alone. If he's willing to pay for both plans just to have options then who are we to argue? But, if the option to take a loan is the driving force here then have him try to get some contract income so that gets him past the zero comp issue which would allow him to take the loan. Also would want to check loan policy to make sure it doesn't require loan payments via payroll deduction. That and nominal contributions to both plans should be able to keep them going, correct?

[Calavera]

Since all his emplyees were paid out, wouldn't both plans become the plans that cover only the sole owner of a business? Therefore the plans are not covered by ERISA, and the funds are subject to creditors.

[J Simmons]

There is case law to the effect that once subject to ERISA, always subject to ERISA--even when the only ones with benefits remaining in the plan are owners.

[Lori H]

he could pay any loans back from his practices plans with money he makes at his current employer, true?

[masteff]

he could pay any loans back from his practices plans with money he makes at his current employer, true?

Might have to review the plans' loan rules but we always allow employees to substantiate other income sources to prove they meet the income criteria (e.g., 2nd job income, spouse's income, rent house income). It would take tightly worded loan rules to restrict to only plan eligible earnings.

But WSP has a point about reviewing how the payments must be made (coupon book versus payroll deductions). W/out any payroll, can't meet a payroll deduct requirement regardless of other income. Of course loan rules can be easy enough to amend.

Also, do loan rules have anything about being in active employment? Ours always have. Keeps people on leave, terms and retirees from being able to take new loans. Which takes us back to the contract income angle.

[Kimberly S]

I also still have a MPP (because Vanguard wouldn ot permit me to restate it as a PS when we did the GUST restatement). My self-employment income has mostly been eliminated for a number of years. But by retaining one or two clients, I've had SE income and made contributions each year avoiding most of the issues raised here. Granted a tax preparation business is a great deal less regulated than a physician, but keeping a little bit of SE income would seem to solve his problem.