Money Purchase Plan Term / Required Contribution

[sdix401k]

A money purchase plan has a 10% contribution rate with an allocation condition of 500 hours of service or employed at year end. Employer wants to terminate plan effective 01/01/08. I am telling them that since the benefit has been accrued that they will need to make the 10% contribution.

Is this correct? I have seen multiple sites that since the benefit has been accrued participants have completed more than 500 hours that the contribution is required.

On another note I have seen information that the plan can be terminated and the required contribution be made to the PS plan.

They are looking into doing an ESOP plan so my second question is that could they terminate the MPP plan and make the required contribution to an ESOP?

Thanks in advance.

[WDIK]

There are several reasons why you cannot have a retroactive termination date. One is the anti-cutback issue you mention. Another is the 204(h) notice requirement.

[sdix401k]

Any comment on my second question or should I move it to the ESOP Board.

[david rigby]

Why terminate? Why not freeze it, and start whatever other plan is desired (PS, k, ESOP, etc)?

[QDROphile]

Amend the MPP to make it into the ESOP so the contribution for 2008 goes to the ESOP. Sounds like this employer will have a rough ride with an ESOP.

[sdix401k]

Any comment on my second question or should I move it to the ESOP Board.

If you froze the plan wouldnt a contribution still be required? Also regarding the ESOP; They do not want to conver the MPP to the ESOP they are looking at making a contribution to the ESOP instead of the MPP.

I beleive based on a prior IRS views that you could terminate the MPP plan and the required contirbution could be made to the a profit sharing plan. I am wondering if the same would be true for an ESOP.

[QDROphile]

I would love to see the authority for making a contribution to another type of plan instead of a contribution that was required under a MPP. I thought that is what 204(h) is all about.

[QDROphile]

I was not suggesting that the pre-2008 MPP be converted to an ESOP.

[Guest Sieve]

-phile --

I had never really thought about it, but I can't think of any reason why the following could not occur:

• Give the 204(h) notice that accruals will cease under the MPPP as of X date;
  
• Amend the MPPP into something else (psp, ESOP), retaining the accrued right to the MPPP mandatory contribution for the year; and
  
• Make the required MPPP contribution into the new PSP, ESOP, whatever, as long as the protected rights to the MPPP contribution were protected for this new $ (i.e., QJSA/QPSA, no in-service distributions, consent for loans, etc., etc.)
  

Old MPPPs were amended into PSPs left and right after the 15% PSP deduction limitation was removed, and I am sure that some MPPP contributions (after giving the 204(h) notice) were, in fact, made into the new PSPs. The 204(h) notice is really only letting people know that accruals will cease going forward. Don't know what that has to do with requiring that the contribution be made to the specific plan in place.

Am I missing something?

[QDROphile]

Benefits are accrued under the MPP. Benefits cannot be cut back. There may be authority out there that says getting "just as good as" benefits is not a cut back, or that providing the same result as a contribution to the MPP with a subsequent merger of the MPP in to a new plan is not a cut back. Absent that authority, I would not advocate failure to make a contribution to the MPP under which the benefit accrued.

Amending an MMP into a profit sharing plan was merging the MMP into the profit sharing plan. The MPP terms with respect to the benefits accrued survived the merger, and the contribution was to the MPP plan in that respect. Hence my suggestion to amend the MPP into the ESOP that the employer wants going forward. The ESOP could be a combination MPP and stock bonus plan, so the question about stiffing the MPP is avoided.

[sdix401k]

The company still intends to make a 10% contribution. They do not want to get out of it. I agree that a benefit once accrued cannot be taken away.

Without any specific guidance from the IRS I guess the question is whether the act of making the contirbution to another plan IE ESOP and or PSP would be considered a cut back???

Does anyone know of any cites on this favorable or unfavorable?

[QDROphile]

The ESOP can be a money purchase plan, so you can get around the question if can't find authority for another option.

[sdix401k]

Thanks for all your posts.

This is what I belive as well. I am not an expert in ESOPS. A law firm is telling them is possible so I just wnat to be informed.