0% Money Purchase Plans

[Sully]

We sponsor the Corbel Volume Submitter 401(k), PS and MP documents. With the PPA restatement coming up I was wondering if we should go ahead and drop the Money Purchase Plan? We only have a few MPP’s left on the books and those are all 0% of pay plans we set up for clients years ago (typically retiring doctors) who wanted to maintain the plan for various reasons but were no longer going to make any contributions to it. Can we switch these clients under the 0% MPP over to a PSP document or will we run into an issue with the PSP not having substantial and recurring contributions? Do other practitioners still use the 0% of pay MPP?

Thank you for any feedback.

[shERPA]

I think the "substantial and recurring contributions" issue is still a problem. We continue to use 0% MP for these.

[ETA Consulting LLC]

I think the "substantial and recurring contributions" issue is still a problem. We continue to use 0% MP for these.

I have always debated with myself on this issue with 0% MP Plans. On one hand, contributions must be recurring and substantial, but on the other hand, the MPP is subject to the funding requirements of Section 412 (no more and no less). If required funding is zero, then it is what it is.

It would always be good to know why the decision was initially made for the plan to exist as opposed to rolling to an IRA. There are still many valid non-plan related reasons such as the product that is used to fund the plan may not be replacable with what is currently offered (i.e. fixed annuity with 6% guarantee ) At any rate, it may be a matter of continuing the offering but at a premium price since it creates a separate process (effortless at that) that is different from the primary offering.

[shERPA]

One of the most common reasons is to continue to self trustee the plan. There may be a number of assets that are not handled by most IRA custodians that the trustee is perfectly capable of handling. In some cases if there are notes, mortgages, rental properties, etc. creating monthly transactions, having a self-trusteed 0% MPP can cost less than IRA custodial fees since the trustee can handle the receipts, payments and banking personally.

[Bird]

I thought the "problem" with not making substantial and recurring contributions was 100% vesting due to the plan being deemed partially terminated. Which isn't much of a problem in the cases in question.

[ETA Consulting LLC]

I thought the "problem" with not making substantial and recurring contributions was 100% vesting due to the plan being deemed partially terminated. Which isn't much of a problem in the cases in question.

The issue with "recurring and substantial" was to establish a fact pattern to support the "permanency requirement" of qualified plans (e.g. you aren't allowed to establish a plan to make a large tax deductible contribution in one year and then terminate the plan and roll it over). Well, that has always been my understanding; not to suggest yours isn't valid

[Bird]

The issue with "recurring and substantial" was to establish a fact pattern to support the "permanency requirement" of qualified plans (e.g. you aren't allowed to establish a plan to make a large tax deductible contribution in one year and then terminate the plan and roll it over). Well, that has always been my understanding; not to suggest yours isn't valid smile.gif

Valid point. Again, maybe not a concern in the case of a restatement of an ongoing/long-time plan. I think it (this 0% MP business) is a case where the IRS wouldn't likely pose a challenge and we are collectively being too clever by half.

[Guest Sieve]

Don't forget the requirement for sponsoring a VS plan (from Rev. Proc. 2005-16, Section 13.04):

A “VS practitioner” is any person that . . . represents to the Service that it has at least 30 employer-clients each of which is reasonably expected to timely adopt a plan that is substantially similar to the VS practitioner’s specimen plan. Notwithstanding the above, the required number of employer-clients reasonably expected to timely adopt a substantially similar money purchase pension specimen plan is reduced to 10 in the case of a VS practitioner that has specimen plans for two or more separate categories described in section 17.03, one of which is a money purchase pension plan.