Restating a MPP to a PSP

[kwalified]

Can a Money Purchase be restated to a Profit Sharing mid plan year without the mandatory contribution? I THINK it can be restated retroactively to the beginning of the plan year, yes? I know a Section 204(h) notice is required and full vesting is not required. This is a small plan with a plan year end of 8/31.

Thanks

[K2retire]

Does the MPP have any allocation conditions to receive the contribution? If so, has anyone met them at the time of the proposed amendment?

[ESOP Guy]

I am with K2 on this one. If a person has already met the allocation conditions they would still be due a MP contribution.

[kwalified]

great.Thanks for your comments.

[kwalified]

Let's say as of today the participants (all 3 of them), met the 500 hour requirement to get a MPP contribution.....the plan is then amended to be restated to a profit sharing? The MPP does not have to terminated does it?

[ESOP Guy]

I don't see any reason to terminate the plan. But given the late date in the year it seems like it would be cleaner to make the change effective 1/1/2013. You would still have to track the MPP money and for those benefits do the J&S distribution requirements even after you change to a PS plan.

One can think of it as having a MPP source in the PS plan and you have to treat that money as MPP money as if that plan still existed. It is only future money that can be treated as PS money.

Sorry if you knew all the stuff I added towards the end of my comment.

[BG5150]

Is the employer trying to get more money into participant accounts? Above the MP contribution? Looking for a bigger deduction?

Could be some reasons they want to do so this year.

[kwalified]

I don't see any reason to terminate the plan. But given the late date in the year it seems like it would be cleaner to make the change effective 1/1/2013. You would still have to track the MPP money and for those benefits do the J&S distribution requirements even after you change to a PS plan.

One can think of it as having a MPP source in the PS plan and you have to treat that money as MPP money as if that plan still existed. It is only future money that can be treated as PS money.

Sorry if you knew all the stuff I added towards the end of my comment.

Its actually not a calendar year plan. PYE is 8/31. Shutting down the MPP would basically avoid funding with a 500 hour requirement. PS would add greater contribution flexibility.

[BG5150]

Its actually not a calendar year plan. PYE is 8/31. Shutting down the MPP would basically avoid funding with a 500 hour requirement. PS would add greater contribution flexibility.

I think if there were any full-time employees, they would have accrued 500 hours in the plan by now. 40 hrs/week x 13 weeks is over 500 hrs. 13 weeks from 9/1 is the last week in November.

[Guest GeerTom]

So they'll have to make contributions for thise who have met the eligibility standards for a contribution on pre-conversion compensation.

Then, at the end of the year they're going to have to pass nondiscrimination testing somehow. That will be based on full year compensation, so there could be anomalous results. For example, some people under 500 hours at conversion date might get to 500 hours then have a zero allocation.

I would seriously consider some sort of offset for the MPPP contributions in the profit sharing allocation formula, at least as a standby. But good luck getting that under a prototype.

The real problems are (1) we don't have near enough information to figure out that aspect, (2) you won't have enough information at the time or conversion, and (3) there simply may not be enough information until near August 31.

Tom Geer

[kwalified]

they have decided to keep the MPP and are looking to amend the formula to reduce the allocation. The plan will only be in existence a few more years as the HCE will be retiring. They plan year starts 9/1 and would have to amended prior to that date in order to reduce the allocation, yes? It could not be amended retroactively in the current plan year.

[Belgarath]

Well, technically they could amend in the next Plan Year, as long as they amend (with appropriate 204(h) Notice) prior to the time anyone satisfies the eligibility requirements - so most likely 2-3 months into the next Plan Year. But it makes more sense to just go ahead and do it before 9/1 - easier to explain and for employees to understand. I have a hard time understanding WHY they would want to retain it as a MP plan. The PS plan gives them much greater flexibility. Maybe cost to restate? Simple inertia? Union contract requirements?

[kwalified]

Thanks. Yea, it is just a 3 participant plan and funds are getting tight. The HCE and his wife will be retiring soon anyway, so they are not interested in the additional cost of restating, etc. The plan has been in existence forever.....change is bad?