New or amended to Cross Tested Plan?

[Guest SPollock]

I have a client who we signed plan documents to set up a NEW Cross Tested Profit Sharing Plan on 12/31. Unfortunately, he already had a Profit Sharing Plan established. Can we fund the cross-tested plan using the cross-tested formulas and not make a contribution to the existing profit sharing plan? Can we merge the old plan into the new plan later this year?

[Larry M]

My understanding is the answer to both of your two questions is "yes".

You can, if you wish, make a contribution to the older p.s. plan and make the balance of the contributions to the new plan (such that the appropriate groups get their excess only share).

Be sure the merger is before the particpants in the old plan earn the right to a contribution based upon the old formula.

[MWeddell]

If you're going to permanently cease make contributions to the old plan, you should merge it into the new cross-tested plan if you wish to avoid partial termination status which'll 100% vest all participant accounts.

[Guest SPollock]

Thank you for the help! To expand on my question: Can I make the profit sharing contribution to ONLY the new cross tested plan and make NO contribution to the older p/s plan? Or am I required to fund the older p/s plan up to sum dollar/percentage amount then contribute the balance to the new cross tested plan. I prefer not to make any contributions to the older p/s plan if possible. Part 2 of my question: Is there a time period in which I must merge the plans such as before any employee hit a certain muber of hours?

[MWeddell]

If you only want to use the new cross-tested plan, then I'd still suggest merging the old profit sharing plan into the new cross-tested profit sharing plan. It's not uncommon for employers to decide not to make a profit sharing contribution for a plan year, but as of whatever date you're found to have permanently cease making contributions, you should have vested employees if the old plan is still a separate plan. Why wait around for trouble, even if it may not be a problem for one year or less?

As far as the time period, if any employee has satisfied the conditions for receiving a 1999 profit sharing contribution, you'd have to first have the employer declare that there's no contribution for 1999 before merging the old plan into the new one. If the plan has a 1,000 hours condition or employed on the last day of the plan year condition, this wouldn't be an issue.