Partner in LLP wants to irrevocably elect out of qualified plan.

[PJaeger]

I have a partner who has been participating in a money purchase pension and profit sharing plan for several years. He now believes he has enough money to retire on and want to stop having contributions go into the plans.

Since he didn't elect out originally, I can't find a way for him to do it now without causing a problem for the other partners. Is there a way I am missing short of him quitting work?

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Paul

[Dave Baker]

Have the plans amended to specifically exclude the individual?

Even though the plan sponsor is adopting such amendments at the request of the individual, it would seem to carry a lot of weight that the exclusion legally was the decision of the plan sponsor. (This wouldn't hold up if the LLC is controlled by the individual, though.) Seems to make it look a lot less like an election, getting around the deemed cash-or-deferred argument the IRS talks about in the first coupla paragraphs of the 401(k) regs.

[Dave Baker]

Are these nonstandardized adoption agreements, which have a "blank" to use to specify an excluded class of employees from being eligible?

If so, I would think that filling in that blank (actually, amending the adoption agreement such that section so-and-so shall read as follows effective 1/1/2000, etc.) would not cause the plan to be individually-designed.

It might cause the employer to lose "reliance" on any already-issued determination letter for the plan, with respect to the amendment anyway - heck, submitting this to the IRS for an updated determination letter would be smart.

[Guest KRKost]

I have seen many plans (individually designed), mostly in smaller medical practices, where the older HCEs merely enter into an agreement with the employer and the plan to waive participation with the effect of having a larger profit sharing contribution for the rank and file. Although a collateral impact is that other HCEs would likely be able to defer more (if it has a 401(k) component), had he stayed in the plan as a participant and not deferred anything, it would be even more beneficial to that group.

I have seen this done many times without a plan amendment and it has not been challenged (in my experience) by the Service on audit.

[This message has been edited by krkost (edited 12-30-1999).]

[PJaeger]

Thanks Dave. I had seen this done once with an individually designed plan. That brings up one last item.

Both plans are prototypes. I don't see where excluding an individual(s) by plan provision would force the plan to be considered and individually designed plan. Do you see a problem with that?

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Paul