Can an existing Money Purchase Plan be amended to a Safe Harbor 401(k)

[Guest dwayne]

I have a client that would like to amend their MP Plan to a Safe Harbor 401(k) for 1999. I believe this can be done if the plan is amended by 4-1-99 and the safe harbor notice is given by 3-1-99. Of course the MP would have to funded through the amendment date and the document would have to cover the MP distribution and J&S rules. I would greatly appreciate other opinions.

[Guest T Hoffman]

The problem in your question is that CODAs cannot be adopted retroactively. As long as the CODA is going to be effective 4/1, the only problem I see is the amendment.

Notice 98-52 requires safe harbor matching contributions and safe harbor nonelective contributions to be subject to the withdrawal restrictions of Section 401(k)(2)(B) and 1.401(k)-1(d). It also prohibits 1,000 hour or last day of the year allocation requirements. This would require substantial changes to most existing money purchase plans before their contributions could be used to satisfy the safeharbor provisions.

[This message has been edited by T Hoffman (edited 02-17-99).]

[Guest rshawlaw]

Why not freeze the MP plan by amending the contribution formula to 0%. Of course, giving 204(h) notice after amendment, but before its effective date. Then adopt safe harbor 401(k) separately. Gives plenty of time to decide what is best approach. Could also use the MP as the 3% nonelective vehicle, top heavy minimum satisfied, etc. and use the 401(k) profit sharing to achieve complete flexibility. I currently have an appeal before the IRS regarding whether a MP plan was considered terminated as the result of a merger (and concommitant amendment) with profit sharing plan. IRS' position is that the MP was not terminated and that the original contributions (10% of comp) are still required. While this is a little different than amending the MP to the 401(k) PS, I am reluctant to amend the former into the latter when there is little to gain from the transaction and everyone gets confused. Footnote: DOL was also involved, and they were also confused (translation--DOL wanted the "missing" MP contributions, too).