Termination of PSP Portion of 401(k) Plan

[chris]

Employer added 401(k) provisions to existing PSP several years ago. Thus, all in one plan document. Employer now says that it wants to terminate PSP portion of plan and allow participants to roll PSP monies out to IRA or take same as taxable distribution, but kep 401(k) intact. PSP monies are held in pooled account of which individual trustee oversees management. Individual trustee is also sole shareholder of employer and does not want that potential liability anymore. Thus, the termination of the PSP has been proposed by employer as an alternative. Plan document allows for participants to direct investment of all of their monies, eg, PSP, 401(k),... Participants are directed the investment of their 401(k) monies. Employer has basically notified participants that they will need to direct investment of all of their monies in the near future and has also notified them that they may be able to roll their PSP out to accommodate that. Is there any way to declare the PSP portion of the plan terminated such that participants can roll out their PSP balances? I guess what is getting me is that I had always learned that the 401(k) provisions needed to be part of a profit sharing plan and I can't grasp terminating one portion of the plan especially since all provisions are in one document. Please let me know what I am missing... Thanks.

[Bill Presson]

The only way I know to do this would be to spin off the PS portion into it's own plan; then terminate that plan.

[Bird]

The only way I know to do this would be to spin off the PS portion into it's own plan; then terminate that plan.

I agree. The employer just needs to be told that he can't do what he thinks he can do and that it's no big deal to self-direct the PS along with the 401(k). And that it's no big deal to keep the optional profit sharing as part of the plan and simply not fund it.

[chris]

While technically doable, i.e., spin-off and subsequent termination, it would seem that such an approach would be cost-prohibitive and as suggested the common sense approach would be to have all participants direct the investment of their entire account balance, PSP and 401(k). I guess it's possible there might be some participants that would refuse to direct the investment of their accounts.... which would leave trustee with a much smaller amount to worry about... Thanks for the responses.

[Kevin C]

Select a suitable Qualified Default Investment Alternative and provide the proper notices and the Trustee won't have to worry about those who refuse to make an investment election.