Money Purchase thinking of restating to a Profit Sharing

[Lori H]

A plan sponsor is looking for ways to cut costs. they currently maintain a calendar year pension plan. Active participants receive an allocation as long as they are employed on the last day of the plan year regardless of the number of hours of service. Terminated participants get an allocation if they work over 500 hours.

My question is could the pension plan be restated and avoid required funding for the current plan year which started January 1?

[PLAN MAN]

One school of thought is participants accrue a benefit once they work over 500 hours for the year. Also, what does the plan say about employees who retire, die or become disabled during the year? Are they required to work any specific number of hours to receive a contribution?

[david rigby]

Freeze it now, and ask your ERISA attorney to opine on the question? At least it won't get any worse while you wait for an answer.

[Lori H]

A plan sponsor is looking for ways to cut costs. they currently maintain a calendar year pension plan. Active participants receive an allocation as long as they are employed on the last day of the plan year regardless of the number of hours of service. Terminated participants get an allocation if they work over 500 hours.

My question is could the pension plan be restated and avoid required funding for the current plan year which started January 1?

One school of thought is participants accrue a benefit once they work over 500 hours for the year. Also, what does the plan say about employees who retire, die or become disabled during the year? Are they required to work any specific number of hours to receive a contribution?

the plan gives contributions to disabled, retired, die regardless of the number of hours. same as active participants without the last day of plan year requirement

[Guest Sieve]

Presumably, no one has accrued a benefit as of today--no one has met the end-of-year requirement, nor (probably) has anyone yet earned 500 h/s (although it will be close). So, aside from the issue raised by P.M. with regard to participants who retired, died or became disabled so far this year, you would not be cutting back accrued benefits if you made the change today.

However, ERISA Section 204(h) and IRC Section 4980F require notice either 15 or 45 days prior to cessation or reduction of any future accrual in a money purchase pension plan (the length of the notice period based on the number of participants who have an accrued benefit under the plan). So, anyone who has earned 500 h/s and terminates employment before the effective date of the amendment (say, May 15--taking into account the notice requirement) will have accrued a benefit under the Plan's terms and will be entitled to the MPPP contribution for the period prior to the prospective elimination of the contribution as described in the 204(h) notice--but no one else will be entitled to a MPPP allocation for subsequent service.

Otherwise, what you suggest is a workable solution.

[Lori H]

Thank you very much Sieve and fellow posters.

[Lori H]

Sieve, It would almost seem discriminatory if a pension plan was required to give a contribution to participants who worked over 500 hours but terminated prior to year end, the plan is restated to a 401k or profit sharing prior to year end and those who were employed on the last day did not receive a pension contribution.

[Guest Sieve]

If the MPPP were terminated in mid-year, then the plan year would be a short plan year ending on the date of termiantion, so all those employed on the date of termination of the plan would be entitled to an allocation based on the end-of-year requirement. However, when a MPPP is restated as a PSP, the MPPP is not terminated--as evidenced by a Rev. Rul. in the last 10 years indicating that there is no required full vesting when that happens--and therefore the MPPP contribution would not be required ifproper 204(h) Notice is given.

Even if you are correct, that would probably not be disriminatory anyhow. It would be a cutback, but discrimination would depend on who the action impacts--and, if it impacts everyone, there's no discrimination.

[Lori H]

Was just playing devils advocate. Seems uniform I guess. Thanks Sieve.