Money Purchase Merger into 401(k)

[oldman63]

A governmental money purchase plan (which did not permit in-service withdrawals) is merging into a grandfathered 401(k) plan, which permit hardship withdrawals.  Following the merger, does the money purchase monies have to be segregated to retain the in-service withdrawal restriction OR can participants take hardship withdrawals of these dollars?

[CuseFan]

Not sure about the implications for a governmental plan, but I'm of the opinion that you should always track different money types separately at all times, regardless - and whether or not there are different restrictions on the different types. My thought, w/o research, is that there is no reason or basis upon which you can now allow in-service w/d on the MP dollars, the merger shouldn't change anything in that regard.

[ESOP Guy]

Don't you have to keep it segregated for the J&S rules?  In non-government MPPs  if you merged it into a 4k plan you would have to offer J&S on the MPP money.  An MPP is a type of pension plan that is covered by the J&S rules.  Since this is a merge those are protected benefits. 

I am with CuseFan you always track the types of money separate.  If it never comes up it doesn't take much effort to do so.  If you need to separate the money out after of years not tracking them separate that is a near impossible task. 

[oldman63]

I also held the common belief that the MP dollars had to be accounted for separately.  In researching this issue, I found that because a merger does not entitle participants to a distribution of their account balances, the IRS has ruled that the assets and liabilities attributable to a money purchase plan must be accounted for separately and must retain their attribute as money purchase plan assets and liabilities ( Rev. Rul. 94-76) Specifically, accounts must remain subject to the joint and survivor annuity provisions of IRC Sections 401(a)(11) and 417.  In addition, the new or amended profit-sharing plan must not permit distributions of the money purchase plan accounts before retirement, death, disability, severance from employement, or termination of the plan.

[Belgarath]

Governmental plans are not subject to the J&S requirements of 401(a)(11) and 417.

I don't know that this changes the answer re hardship distributions, but depending upon the type of governmental plan (public safety, for example) the NRA might well have been less than age 62.  However, going from memory, the anti-cutback rules of 411(d)(6) also don't apply to governmental plans. If so, then a lot would depend upon the document provisions. This could get really tricky. There are some proposed regs re NRA on governmental plans, but I frankly haven't paid much attention, as we don't do governmental plans. Maybe someone else more familiar with them can give you a better discussion of the subject, and whether any of it applies to your situation anyway.

Regardless of what MUST be done, I'm with previous posters that you should ALWAYS track the amounts separately!

[CuseFan]

2 hours ago, Belgarath said:

Governmental plans are not subject to the J&S requirements of 401(a)(11) and 417

That is my understanding as well, but doesn't answer the question in-service withdrawal questions. I would defer to the original (MP) document and if it didn't allow for those dollars I would not allow under the new merged plan.

[Bri]

Occasionally you can wind up with a poorly-drafted document in a government plan that left the J&S rules in place for the plan, even though they weren't needed.

[david rigby]

52 minutes ago, Bri said:

Occasionally you can wind up with a poorly-drafted document in a government plan that left the J&S rules in place for the plan, even though they weren't needed.

Occasionally?

[Carol V. Calhoun]

On 8/24/2017 at 1:49 PM, david rigby said:

Occasionally?

I remember a long time ago saying jokingly to someone at IRS, "You'll be horrified to discover that some of our governmental plans don't comply with all of the IRS qualification requirements."  Her disbelieving response was, "You mean some of them do?"