Money Purchase Plan

[Guest printogirl]

Hi I'm not sure if this is posted in correct spot. Employee is sole participant (self employed) in MPP. Employee has made a contribution for last 8 years. However in 2009 employee worked only four hours a week (part time). According to the plan 1000 hours a year of service are required to constitute a year of eligibility of service. Also 500 hours of service must be exceeded to avoid a break in eligibility service. Does employee still make a contribution for 2009 plan year? Thank you!

[Effen]

In the section of the plan that defines the contribution it should also define who receives the allocation. This is where you need to look to determine if a contribution is necessary.

It may say something like, "all participants who complete X hours of service and are employed on the last day of the plan year will receive an allocation of y% of compensation". Or it may just say any participant who completes a "Year of Service" will receive the allocation, in which case you need to check the document for the definatio nof "Year of Service".

Either way, the answer is in your document.

[Guest printogirl]

Thank you Effen for your reply but I'm still a bit confused. I checked the plan document (standard brokerage plan). It states that 1 year of service is required. Under the Eligibility Section it requires 1000 hours of service to constitute a year of eligibility and also states that 500 hours of service must be exceeded to avoid a break in eligibility. I guess what I am confused about is whether or not the eligibility requirements apply just to the initial eligibility (participant was full time in prior years and therefore met requirements) or also to the continued eligibility of participant. (ie, since participant is working less than 500 hours does he now become inactive and not eligible to contribute?). Employee was not terminated but has merely had a reduction in hours worked. Thanks if you can help clear this up for me.

[Effen]

In a prototype you would typically see several definitions for "Year of Service" - one for eligibility purposes, one for vesting purposes and one for accrual purposes. You want the one for accrual purposes.

If yours doesn't clearly define years of service for accrual purposes, you might need to look in the body of the plan. That is the much larger document that came with the adoption agreement. If you don't have that, you need to contact the person who wrote the plan and ask them.

Also, make sure you look through the entire adoption agreement. Sometimes they don't put things where you think they should be.

[jpod]

Perhaps a more important question is: Does he/she wish to make a contribution for 2009? If so, if there is any obstacle to that in the plan document the document can be amended before the close of the year to remove the obstacle(s).

[Guest printogirl]

Thank you again Effen! Is the accrual section the same as the contribution section? (I have read this plan word for word!) If so, in the contribution section it states that participant will be a qualifying participant if "participant has satisfied all of the eligibility requirements described in (then it refers to the eligibility section) on at least one day of such plan year and has not incurred a termination of employment." The eligibility section has the 1000 hours/500 hours requirement that we already discussed. So is it safe to assume that participant does not qualify this year since he did not meet the eligibility requirements (only worked 4hrs a week or 200 hours the entire year). Thank you again for your reply. (I think I've almost have it figured out )

[Guest printogirl]

Perhaps a more important question is: Does he/she wish to make a contribution for 2009? If so, if there is any obstacle to that in the plan document the document can be amended before the close of the year to remove the obstacle(s).

Thank you jpod for your reply too! Not looking to amend anything -just trying to figure out if a contribution needs to be made. Thanks

[Effen]

Based on what you quoted, I would probably say they would be entitled to the contribution because he has obviously met the eligibility requirements (since he is a participant) and he has not terminated.

I see three options:

1) give him the allocation based on the above interpretation

2) let the sponsor make an interpretation based on the document - after all, it is his plan, not yours. Since it is a one life plan your chances of getting sued for following his interpretations seems fairly remote. (If there were other participants I might think differently.)

3) contact the document provider and ask them for an interpretation of their document

[Guest printogirl]

Based on what you quoted, I would probably say they would be entitled to the contribution because he has obviously met the eligibility requirements (since he is a participant) and he has not terminated.

I see three options:

1) give him the allocation based on the above interpretation

2) let the sponsor make an interpretation based on the document - after all, it is his plan, not yours. Since it is a one life plan your chances of getting sued for following his interpretations seems fairly remote. (If there were other participants I might think differently.)

3) contact the document provider and ask them for an interpretation of their document

Thanks again Effen- I don't know why I am having trouble with this. I know he met the intial eligibility requirements but isn't the plan requiring that on a yearly basis participant meet eligibility conditions (ie more than 1000 hours of service) for an employer contribution? (it requires participant to meet eligibility requirements on a least one day of such plan year (which he hasnt cause he hasnt worked 1000 hours)...the termination part of clause in contribution section is only in there because it goes on to state further conditions for terminated employees (which dont apply because he is still working). Thanks!!

[Effen]

I wouldn't read it that way - how could you have 1000 hours of service on a given day?

I think it just means that if they are a participant at any point during the year, and have not terminated, then they get the contribution. Since he was a participant on the first day of the year, he met the requirement as long as he didn't terminate during the year.

It would not be uncommon for a "standard brokerage plan" document to be generous with contributions. Just remind him how much he saved on his document by using a prototype when you bill him your time to interpret it, and add to that the extra he has to contribute to the plan because of it. Penny wise, pound foolish

[david rigby]

I know he met the intial eligibility requirements but isn't the plan requiring that on a yearly basis ...

Generally not. Most plans use "eligibility" to refer solely to entry into the plan. Once you meet that definition, you're in the plan. Then use another definition to define who gets an accrual, per Effen's comments in Post 4.

[Guest Sieve]

It is more likely, in my experience, that the requirements for whether or not a participant recieves an allocation of the contribution for the year--if there are any allocation requirements--will be in the contribution or allocation section of the plan or, if it has one, in the plan's adoption agreement.

[Bird]

If so, in the contribution section it states that participant will be a qualifying participant if "participant has satisfied all of the eligibility requirements described in (then it refers to the eligibility section) on at least one day of such plan year and has not incurred a termination of employment."

That's somewhat awkward language but I think it means if the employee had 1000 hours in a year, any year, and didn't terminate during the year, then s/he is a "qualifying participant" which presumably means "gets a contribution." I would be surprised if it didn't also say something about working 501 hours during the year, even if terminated, being a qualifying participant (and having worked 1000 hours in a prior year).

You said it was a "standard" brokerage plan; a "standardized" plan is a simplified plan that, among other things, says that anyone who has satisfied participation requirements and works 501 hours or is employed on the last day of the year gets a contribution. Not sure if you meant it in that sense or not, but in any event it sounds like some sort of "easy" prototype with generous allocation language in which your participant does get a contribution for 2009.