Merging Plans

[Guest scottcal]

Hello,

I'm not sure if this is the right place to post; if not, perhaps someone can suggest a more appropriate board.

I own my business. I am the only employee, the biz is a C corp and is 12 years old. I have sought advice from my accountant and from Charles Schwab (who administers my retirement plans) but cannot seem to get a definitive answer. I'm also not the most savvy about this stuff.

I have two plans, a Profit Sharing and a Money Purchase at Schwab. They were implemented a few years back to allow me to make maximum (up to 25% I think) contributions to my retirement. I am not required to make a PSP contribution but remain required to make a MPP contribution.

Since the rules have changed, I would like to fold the MPP plan into profit sharing so I just have one plan and am not required to make an annual contribution. My company has had a couple of lean years and I need the cash to operate.

My company's fiscal year runs from Aug 1 to July 31.

I was told by Schwab that there are certain timing requirements for when I can liquidate and rollover the MPP distribution to the profit sharing account but they cannot be specific. I am trying to find info to figure out the following question:

If I eliminate (and merge) the MPP plan before the end of the fiscal year, do I still need to pay out a contribution for the fiscal year about to end? If it requires a board of directors vote, that is fine because I am all the directors.

If no one knows the answer to this, perhaps you can refer me to some area on the Web where I may find it?

Thank you so much! I appreciate any help you can provide.

[WDIK]

If I eliminate (and merge) the MPP plan before the end of the fiscal year, do I still need to pay out a contribution for the fiscal year about to end?

This depends on whether or not you have met the requirements for accruing (or earning a right to) a benefit for the period in question. Normally, the requirement would be to have worked a certain number of hours and/or be employed at the end of the year. The specifics would be contained in your plan document and adoption agreement.

I'm sorry that Charles Schwab does not seem to be able to address this issue, but it will need to be someone that has reviewed the pertinent plan language.

[FormsRstillmylife]

Look in your MPP where it describes the employer contribution formula. There should be a section describing who is eligible to receive the contribution. It will say:

anyone employed; or

anyone with an hour of service during the plan year; or

any participant with 1,000 hours of service.

You need it to also say that the participant must be employed on the last day of the plan year. If this language is there, then you can merge the MPP into the PSP now and avoid the 7/31/2007 contribution. If there is no last day of the plan year requirement for a contribution, you have probably worked 1,000 hours or whatever lesser requiremetn there is and the MPP contribution will have to be made for this year. In this case merger would have to wait until midnight 7/31/2007.

[J Simmons]

FormsRstillmylife,

Why would merger have to wait until midnight on 7/31/2007? Granted, there will be a MPP benefit accrual if year end employment isn't a requirement and he's already hit whatever the hours-in-current-year requirement is, but if he takes action now to merge the MPPP into the PSP, terminating the MPP formula, and gives a 204h notice, can't the required benefit accrual be stopped as to earned income after 15 days from giving the 204h notice?

[Guest scottcal]

Wow, thanks so far for your answers. I am keeping an eye on this forum--I will locate my plan documentation and see what that says.

Someone at Schawb last year (I was thinking about it then but didn't do it because of my confusion) said if I'd worked 520 hours already then I must make a retirement contribution. My accountant disagreed with that, but said he was no expert and could be wrong. This year Schwab was not willing to advise me.

Thank you all so far!

Sc

[Bird]

I own my business. I am the only employee, the biz is a C corp and is 12 years old. I have sought advice from my accountant and from Charles Schwab (who administers my retirement plans) but cannot seem to get a definitive answer. I'm also not the most savvy about this stuff.

Sorry if this seems picky, but Schwab is NOT administering your plans. They're (happily) holding the money but that's about it. I imagine they gave a document(s) but otherwise you're on your own; of course that's why you're here.

Odds are that you have a required contribution; 501 hours is probably the threshold. If you don't care that you have to make the contribution, then just make the merger as of July 31, make the contribution, and July 31, 2007 will be the final plan year. If you do care, well, for the most part that's too bad, because you as a participant have earned the right to a contribution. I think you could freeze the plan and only make contributions for pay earned up to the date of the freeze, but you (the employer) have to give notice to you (the employee), I think it's 15 days now, and you're pretty near the end of the year so that might not do much good.

[Earl]

Schwab: what's a 5500?