Converting money purchase plan to 401(k)

[Guest Jill41402]

Can anyone provide any guidance with respect to converting a multiemployer money purchase plan to a 401(k) plan? Are there specific rules as to what this type of conversion requires? Will the funds presently in the employee's account be treated the same as funds contributed after the conversion?

[JanetM]

This can be done easiest by adding new plan and merging the MP plan into new plan. First amend MP plan to 0% contribution and freeze/close plan. Give out 204h notice noting date the accrals cease. Adopt 401k plan effective day after MP accruals cease. Give out lots of info so everyone can sign up for deferrals on effective date. Transfer MP funds - yes they continue to rectain the J&S provisions in the new plan - and any other protected benefit.

[rlb64]

JanetM,

Is it absolutely necessary to amend the allocation % to 0 or can the merger be effective by resolution only (disregarding the notice)?

[JanetM]

Yes you have to amend the MP plan to 0% and freeze the plan. The Plan is subject to required minimum contributions (it is pension plan) based on the % contribution stated in document. Unless you change the % to 0 & freeze you have to continue to make contributions and you can't merge with 401k plan. The 204h notice is mandatory when you reduce or eliminate benefit accruals.

[WDIK]

Doesn't a resolution to freeze benefit accruals accomplish the same thing as amending the formula to 0%?

[JanetM]

Well I suppose if the resolution will result in the 204h notice and SMM given out in timely fashion. But I get the impression from OP that they want to change the plan with out giving notice to participants.

We are now more cautious on paper trail. All resolutions end up as amendments. Goes back to IRS determination letter package we filed to merge three DB plans in 2000. We had resolutions for two plans but not actual plan amendments. IRS agent reviewing the determination letter package for the consolidated plan said it wasn't good enough. They only look at plan docs and amendments. Not resolutions.

[Guest Jill41402]

Well I suppose if the resolution will result in the 204h notice and SMM given out in timely fashion. But I get the impression from OP that they want to change the plan with out giving notice to participants.

We are now more cautious on paper trail. All resolutions end up as amendments. Goes back to IRS determination letter package we filed to merge three DB plans in 2000. We had resolutions for two plans but not actual plan amendments. IRS agent reviewing the determination letter package for the consolidated plan said it wasn't good enough. They only look at plan docs and amendments. Not resolutions.

Follow up question: Does anyone have any thoughts on whether the employers with current CBAs can object to the changing of the plan so as to bar the conversion? I know they can object, but is there anything that could then prevent the conversion due to objections?

Thanks.

[Mike Preston]

The unions *will* object if this is being done without their participation in the process. I can't imagine any multiemployer plan and its advisors not already being aware of the requirement to involve the union in something like this. What is actually going on?

[Guest Jill41402]

The unions *will* object if this is being done without their participation in the process. I can't imagine any multiemployer plan and its advisors not already being aware of the requirement to involve the union in something like this. What is actually going on?

this is being done to give the employees the ability to make their own contributions in addition to the employer contributions and to give them more control over their funds. The union trustees, along with the employer trustees are considering this.

[Mike Preston]

I think the trustees need to engage LABOR/ERISA counsel to help them because it appears they have some LABOR/ERISA related questions that are best put to somebody in the legal profession.

[Guest Jill41402]

I understand about ERISA counsel and that the employers/union/employees could object, but I just want to know if there is any way that the conversion can be blocked.

Any help would be appreciated.

Thanks

[Guest Sieve]

Absent negotiation with the unions--or at least agreement by the unions--this "conversion" is probably an unfair labor practice. I assume the union could sue to enjoin the conversion or to enjoin the commencement of deferrals or to enjoin the reduction of the MPPP employer contributions to 0%. You will have to give your 204(h) Notice to the union reps (ERISA Section 204(h)(1), IRC Section 4980F(e)(1), Treas. Reg. Section 54.4980F-1, Q&A-10(a)), so the union will be put on notice of what you're intending to do--and unions are often quick on the litigation trigger.

[Guest Jill41402]

I don't believe the union will have a problem with this conversion, I think it will be the Employers. This conversion is being contemplated to allow current participants to keep their money in their accounts and contribute when their employer no longer contributes (the employer will be contributing to a National pension fund in lieu of the local's pension fund).

[Guest Sieve]

We're getting beyond the scope of these discussions, but how can the union impose a new benefit on the employers' employees without opening labor negotiations?

[Guest Jill41402]

Ok, back to the substance of the issue (sorry for the diversion): will the employees have to be 100% vested upon this conversion?

[Guest Sieve]

I didn't see that question asked earlier. In any event, if done properly there will be no requirement to fully vest participants in a MPPP which is merged with another DC plan (i.e., a 401(k)/PSP). See rev. Rul. 2002-42