Can an employer's money purchase plan be merged to it's start up 401(k)?

[Lori H]

Small employer sponsors MPP is considering a 401(k). They have to freeze or terminate the MPP I believe and give the participants normal distribution options under the plan as well as 204(h) notices, full vesting,etc yes?

[ErisaGeek]

The employer can certainly either terminate and cash out the MPP or simply merge the MPP into their new 401(k) plan.

If you merge the plan it will simply be a trustee to trustee transfer and no participants would be able to take a distribution if still employed. Also you could keep the vesting schedule in tact or to simplify make everybody 100% vested. You don't have to make them 100% vested. Also to keep in mind is the fact that you will have to make sure the 401(k) plan allows for J&S rules otherwise you will have to add that option at least for the MP contributions and deal with spousal consent notices etc....

However if you were terminating the MPP then all accounts would be 100% vested and participants would be able to decide if this wish to rollover into the new 401(k) plan or simply take a lump sum distribution or rollover to an IRA.

[Lou S.]

Oh and if you do merge you'd still need a 204(h) notice since the guaranteed MP contribution would be going away.

Also if you merge the in-service restriction would be age 62 at the earliest for the transferred MP money in addition to the J&S requirements referenced by ErisaGeek above.