Merging CT MP & P/S

[Ervin Barham]

Non-profit plan sponsor wishes to consolidate its C/T Money Purchase Plan and its 401k plan (non-integrated). Since it is a non-profit, the 15% deduction rule doesn't come into play here.

However I am concerned that by merging the two plans, and restating the P/S to be a cross-tested plan, that we may be running afoul of the IRS February 28 deadline since the P/S currently does not have a cross-tested feature.

Any thoughts out there?

Thanks.

[Guest JAREL]

I don't have a comment on your C/T issue, but when I hear (or see) someone say they don't have a deduction issue since they are non-profit, I have to remind them of the 10% excise tax on nondeductible contributions, which applies if the "non-profit" ever had unrelated business income (which many have).

[AndyH]

Jarel, could you provide a cite for your unrelated business income comment?

[Guest rhp]

How about restating the money purchase cross tested plan as a 401k cross tested plan, then merging the existing 401k into it?

[Guest JAREL]

IRC Section 4972(d)(1)(B) exempts certain plans from the excise tax on nondeductible contributions (referencing Section 4980©(1)which refers to a plan "maintained by an employer if such employer has,at all times, been exempt from tax under...". PLRs have interpreted this exemption to exclude any tax-exempt employer that has been subject to unrelated business income tax (see PLRs 9304033 11/92; 9236026 6/92; 9622037 3/96); these are a few.