Wating Period for Money Purchase Pension

[Guest jfreeborn]

Has anyone run across a provision in a money purchase pension plan that requires the participant to no long work in the industry for 12 months prior to receiving access to their benefits? The 12 month waiting period only applies if the participant is under NRA or early retirement age. I've heard of this for defined benefit plans, but never in defined contribution plans. Its a collectively bargained multiemployer plan.

Any know if such a provision is valid, and if so, what provision of ERISA applies?

[Guest Sieve]

ERISA would not prohibit it, as long as distributions are permitted no later than NRA.

[david rigby]

Of course, if such a provision is added to a plan, 411d6 would be violated if it applied to benefits already accrued.

[mal]

Yes, it is legal and required by the IRS. You can't use the money purchase plan as a savings account. There has to be a bona fide event that triggers distribution (e.g. retirement, death, disability or separation from employment). This is a tough call for multiemployer trustees. Is a person who has been laid-off for 6-8 months really separated from the trade?? In all likelihood he is still on a hiring hall list and an active union member. Nonetheless, the 12 month threshold is fairly common.

The IRS regulations are clear as mud on this point when it comes to multiemployer plans.

[Guest Sieve]

I didn't know there were regs relating to termination of employment as it relates to multiemployer plans. Where are they?

[mal]

I didn't know there were regs relating to termination of employment as it relates to multiemployer plans. Where are they?

I sent you a message with text of a memo we put together on this issue.

[Guest Sieve]

mal -

I absolutely agree with your conclusion that a termination of employment must be bona fide in order to permit distribution of a MPPP account balance (unless, of course, the individual has reached NRD and an in-service distribution is permitted at NRD or age 62). You are correct that such a result is clear from IRS pronouncements.

I was not understanding, however, what you meant when you said in your post that "it is legal and required by the IRS". I wondered what provision of the Code requires a 12-consecutive month termination of employment in order to receive a distribution form a mutliemployer MPPP, but now I understand you to be saying that the employment termination must be bona fide, and it is not uncommon for the 12-month requirement to be present in multiemployer DC plans. Thanks for the clarification.