0% Money Purchase For Rollovers

[austin3515]

Anyone have a problem with a SIMPLE Plan sponsor setting up a 0% money purchase plan to allow the owner to do a rollover and take a loan? Yes, the employees can make a rollover contribution as well.

[Peter Gulia]

Could this idea be done with a profit-sharing plan?

[ETA Consulting LLC]

No problem Austin. Fiduciary... The problem with attempting to do this in a profit sharing plan is that qualified plans must receive """substantial and recurring contributions'''' in order to be valid. The Money Purchase Plan is subject to a fixed formula (even zero), the would appear to preempt the substantial and recurring requirement.

Good Luck!

[ESOP Guy]

I know a few attorneys that object to a 0% MP plan. They always set up a 0.5% MP plan.

They fear that Government will take the position this isn't a real plan as the purpose wasn't to provide benefits but as you say simply allow for money that you couldn't take a loan from to now take a loan.

They also questioned if 0% is really a benefit level.

I never have heard of a 0% MP plan blowing up but I know lawyers that don't like them.

I am not sure why it matters if you don't have substantial and recurring contributions. I thought the only effect was you had to vest people. If 100% of the money is rollover money isn't already vested? It has been a long time since I had a substantial and recurring contribution problem so I could be forgetting something.

[BG5150]

^^ I've seen MP plans go from, say, 3% to 0%. I see it like freezing the plan. However, I've never seen one at 0% from effective date.

Maybe they could set up 1/2%, exclude HCEs, for the first year and amend it to zero the next.

[austin3515]

I think the EOB is pretty clear that a 0% MP is ok, and it was in the section of "can a plan JUST allow for rollovers."

[K2retire]

But doesn't the existence of the MPP interefere with the ability to continue the SIMPLE?

[austin3515]

That was the crux of the question, but an employer can sponsor more than one plan, they just cannot contribute to more than 1 plan.

[Belgarath]

Right, and IRS Notice 98-4 is very clear that rollovers don't count as a "contribution" for purposes of violating the "only plan" rule.