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Transfer of assets from qualified plan to nonqualified plan


t.haley

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I have a situation with a client that has me stumped. Existing 401a profit sharing plan effective in 2000. Employer discretionary contributions only, 100% immediate vesting. The TPA who set up plan was misinformed and thought the employer was a governmental employer (not subject to discrimination rules). So they set plan up to cover only a select group of HCEs. In addition, the employer has a 403b that covers staff employees (all those excluded under 401a plan). Now, 10 years later, a new TPA discovers mistake (employer is NOT a governmental employer) and thinks the original TPA tried to set up essentially a 457f plan using a 401a prototype plan document for governmental employer. Of course, because they thought the employer was a governmental entity, no Form 5500s were filed and the 401a plan has not been restated for EGTRRA (they in are Cycle A, 1/31/07 deadline). My mission now is to figure out how to correct this mess. Here's my proposal - establish 457f plan, transfer assets/liabilities from 401a plan to the new 457f plan and then terminate the 401a plan. What I don't know is what to do about the qualification issues with the 401a plan (discriminatory, no 5500s, no EGTRRA restatement). Do these even matter since the assets are being transferred to a nonqualified plan? Any suggestions or guidance would be greatly appreciated!

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Have you considered the possibility that the ER was a government employer at the time, but is no longer?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Have you considered the possibility that the ER was a government employer at the time, but is no longer?

I wish that were the case. No, the employer has never been a governmental employer. They are a 501©(3) non-profit entity.

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