Pre-ERISA MPPP with 401k Feature

[J Simmons]

I provide services, including document drafting, to a pre-ERISA MPPP with a 401k feature that has been grandfathered passed the prohibition of a 401k feature being in a MPPP. The employer is a local governmental entity. So this plan is grandfathered in the additional aspect that a governmental employer has a plan with a 401k feature.

In the past, I've prepared documents for this plan by preparing an MPP (NS) adoption agreement to a DC prototype, then adding the 401k feature provisions by way of a contemporaneous amendment--making the plan individually designed. We applied for and received a GUST II d-letter.

For EGTRRA, I dropped the MPP prototype and now have just a 401k PS prototype (NS). Rather than draft an individually designed plan document, I am considering adopting the plan preparing an adoption agreement to the EGTRRA 401k PS prototype (NS) that preserves the QJSA/QPSA as the default form of payout and not allowing hardships or any other in-service distributions. In the SPD, I'd also specify the fixed contribution obligation that has been part of the MPPP, despite the new governing plan documents reserving annual discretion to the employer as to what contributions to make.

My prototype was approved with language about governmental plans using it not being subject to the minimum coverage requirement provisions or the nondiscriminatory allocation provisions, and being subject to the minimum vesting provisions only to the extent not varied by an addendum to the adoption agreement.

My question is whether changing the type of plan from MPP to PS would jeopardize the grandfathering of the governmental employer having a plan with a 401k feature?

Any other concerns?

[Kevin C]

John,

This deals with a different governmental exemption, but it might help. I found a reference that helped lead me to it in PLR 9152026, 9/27/1991.

1.401(k)-1(e)(4) Limitations on cash or deferred arrangements of state and local governments

(i) General rule. --A cash or deferred arrangement does not satisfy the requirements of this paragraph (e) if the arrangement is adopted after May 6, 1986, by a State or local government or political subdivision thereof, or any agency or instrumentality thereof (a governmental unit). For purposes of this paragraph (e)(4), an employer that has made a legally binding commitment to adopt a cash or deferred arrangement is treated as having adopted the arrangement on that date.

(ii) Rural cooperative plans and Indian tribal governments. --This paragraph (e)(4) does not apply to a rural cooperative plan or to a plan of an employer which is an Indian tribal government (as defined in section 7701(a)(40)), a subdivision of an Indian tribal government (determined in accordance with section 7871(d)), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State or tribal law which is owned in whole or in part by any of the entities in this paragraph (e)(4)(ii).

(iii) Adoption after May 6, 1986. --A cash or deferred arrangement is treated as adopted after May 6, 1986, with respect to all employees of any employer that adopts the arrangement after such date.

(iv) Adoption before May 7, 1986. --If a governmental unit adopted a cash or deferred arrangement before May 7, 1986, then any cash or deferred arrangement adopted by the unit at any time is treated as adopted before that date. If an employer adopted an arrangement prior to such date, all employees of the employer may participate in the arrangement.