Remove QJSA from MP?

[Guest adub4684]

Working on a conversion with a plan sponsor who merged their MP plan into their 401k Profit Sharing plan 14 years ago. The receiving vendor doesn't support annuities, so they can only accept the 401k assets. We explored a partial plan transfer of the k-assets only, but the other vendor won't liquidate by source. Can the plan sponsor and/or participants remove the J&S from the MP assets therefore removing the protected benefit?

[Lou S.]

No. The MP assets must retain their J&S characteristics.

[Effen]

I don't think so, but others may offer different opinions. I believe because a MP is considered a "pension" plan, 411(d)(6) applies to all rights and features.

You could spin the MP piece back out, then terminate the MP plan.

Also, why would you have hired a vendor that couldn't handle this. Isn't that why you do vendor searches?

[Guest adub4684]

Effen - we're talking to the current vendor about a partial plan transfer but they only liquidate by investment, not source. 80ish participants would have to move over $100K of MPM into one fund while having the k-assets in the other fund options...not really feasible. Also, they joined the PEO then later decided to consolidate everything (401k) so their research was more payroll/HR directed rather than 401k. That being said, the plan sponsor didn't even know they had MPM in their Plan, so that's a much bigger problem.

[Guest adub4684]

What about 411(d)(6)(B)??: The final regulations provide guidance on the circumstances under which a qualified retirement plan can be amended to eliminate or reduce early retirement benefits, retirement-type subsidies, or optional forms of benefits. Specifically, the final regulations provide rules under which a plan may be amended to eliminate benefits that are burdensome to the plan and participants and are of de minimis value to plan participants.

[Effen]

If your plan contains many optional forms of payment you are permitted to remove some of the options, if they are redundant or very similar to other options, but you can't just remove all J&S options from the plan.

Remember, the J&S option is one of the basic provisions of any pension plan. You can't just eliminate it because a vendor thinks it is burdensome.

[david rigby]

Ditto to comments by Effen. this is pretty basic.

BTW, what is meant in the original post by "receiving vendor doesn't support annuities"?

Is the vendor the trustee? Is the plan sponsor letting the vendor determine what plan provisions are permitted?

[My 2 cents]

Figure that the plan provisions are a given. If the vendor cannot handle annuities but the plan permits them, they should not be competing for that piece of business and the plan sponsor should not be picking them even if they do compete for it.

[ESOP Guy]

The odd part of all this is while VERY rare a 401(k) could offer an annuity as an optional form of benefits. So this idea the vendor can only handle 401(k) assets makes very little sense.

Also, is there anything stopping the plan from taking the MP money from the vendor if someone asks for an annuity and buying an annuity from an insurance company and using that to pay the annuity?

It seems like there are options here. Including the finding a new vendor as pointed out by others.

[MWeddell]

One cannot remove the annuity forms of payment from monies (and investment earnings on them) that came from a money purchase pension plan. The IRS has issued guidance addressing this very point.

[Bird]

As ESOP Guy notes, if by some highly unusual and rare event, someone wanted an annuity, you just buy it from an insurance company. That assumes someone (the TPA) is preparing option election forms that actually offer the annuity option; it sounds like the vendor can't do it.

Back to the original point, you absolutely positively cannot remove the J&S annuity from MP assets.

[jpod]

How many people still in the plan have money purchase pension money in the plan? If that number is small it might be worth putting this behind you once and for all by doing a spin-off termination of the MPP piece of the plan and if one or a few participants (or their spouses) insist on an annuity, so be it (although the annuity purchase rates are terrible right now).