401(k) or Money Purchase

[Guest GMP]

We just took in a plan that was described as a 401(k). However, under the terms of the document, there are no pre-tax deferrals. The participants are allowed to make discretionary after-tax contributions. These after-tax contributions are then eligible for an employer match which is not discretionary - the amount is specified in the document.

Our group spends most of our time doing DB plans, but this does seem like a money purchase plan to us (even though the lawyers say it isn't). Any thoughts?

Thanks.

[Tom Poje]

wow. how much dust is on that plan. haven't heard of one of those in years. was it found at the antique shop?

it's not a money purchase.

and there is certainly nothing wrong with having a plan with after tax contributions, though why bother in this day and age.

and nothing wrong with matching after tax contributions.

as I recall, everything tested using the ACP test.

that's about all I remeber about those plans.

[jpod]

I am not doubting that you are reading the plan correctly. But: are they in fact handling employee contributions on a pre-tax basis and that would explain why it was "described" to you as a 401k? If so, good luck.

[Tom Poje]

if it truly is after tax, this means the people can either (example only)

after tax $5,000 earn interest and pay taxes on that interest when the money is taken out

or

forget the plan, put the same amount into a ROTH and pay no taxes on the interest.

hmmmmmmmmm.

[Lou S.]

if it truly is after tax, this means the people can either (example only)

after tax $5,000 earn interest and pay taxes on that interest when the money is taken out

or

forget the plan, put the same amount into a ROTH and pay no taxes on the interest.

hmmmmmmmmm.

yeah but they'd be giving up the employer match to to it.

though I have to admit this plan design does sound antiquated, why not just do a ROTH-401(k) and get the best of both worlds?

[masteff]

I work in oil and gas and once had an old plan dating back to 1952. In the pre-(k) era, DC plans such as this were often referred to as "savings and thrift plans". Many older companies still bear the term in their plan names, such as "ABC Company Thrift Plan" or "XYZ Corp Savings and Thrift Plan".

8 to 10 years ago, I know one of the MaBell successors still had at least one group of employees with a DC plan w/out a (k) feature (I reviewed an SPD for a coworker whose husband was in the plan).

I'd bet if you look on the 5500 that the plan effective date is quite a few years back (or as someone said above, antiquated).