Money Purchase PP

[SWC]

I am the participant (age 62) in a one-participant money purchase pension plan that was started about 20 years ago and I would like to discontinue contributions to the MPPP.   The assets of this plan include various mutual funds as well as an annuity contract with a guaranteed lifetime payout even if the underlying securities decline in value.  I also have a SEP that was created earlier in my career which has been inactive since the creation of the MPPP.  The SEP assets consists of various mutual funds. I believe my plan documents are up to date and all 5500's for the MPPP have been timely filed.  I would like to combine the assets of the two plans and from my online research of the issue I've learned "just enough to be dangerous".  

Specific questions are as follows:

1.) Should I "terminate" the MPPP or "freeze" it?  How long can a MPPP be frozen?

2.) If I terminate the MPPP, what happens to the annuity contract and the lifetime payout it provides?

3.) Can the mutual funds in the SEP and those in the MPPP be combined into a single account?

Of course, I don't want to create a taxable event from any action I take.

Any advice will be much appreciated.  Thanks very much.

[Bird]

Super-quick answers below to point you in the right direction, but you really need someone - a third party administrator most likely - to help you with the specifics to accomplish the desired actions.

The plan should be terminated.  No need to "freeze" it and keep it indefinitely if you're not making contributions.

Assets can/should be rolled to an IRA.  You should be able to use the SEP if you wish (a SEP is really just a vehicle to get money into an IRA).  Check with your SEP custodian to be sure.

You should be able to re-title all assets, one way or another, from the MP to the SEP.  But if the SEP custodian and the MP custodian are different, it will be difficult at best.  You or your broker are going to have to expend some effort on that.

The annuity is (probably) just a deferred annuity with a rider that promises lifetime income.  Shi...crappy, expensive nonsense that just makes more commissions/revenue for the company but that's my opinion and you didn't ask.  Anyway, your agent, who made a nice commission on it, should do that work for you (moving from plan to IRA) so you just have to sign a form.

Don't forget to file a final 5500.

Good luck.

[SWC]

Thanks very much.  Also, if I terminate the plan, what's the advice on whether a Form 5310 (which I understand is optional) should be filed?

[Belgarath]

I don't really have "advice" but I will say that we haven't filed for d-letters on termination for years. Particularly if using pre-approved documents where interim amendments have been timely adopted.

[NJ Mike]

Same here.  Have not filed for a DT in many years.

 

Mike

[ETA Consulting LLC]

21 hours ago, SWC said:

1.) Should I "terminate" the MPPP or "freeze" it?  How long can a MPPP be frozen?

2.) If I terminate the MPPP, what happens to the annuity contract and the lifetime payout it provides?

This would be a major consideration.  If the annuity contract is providing guarantees (i.e. fixed interest rate) that you would have to forego in the event of plan termination, then you may consider a freeze indefinitely.  Basically, you'll merely change the contribution rate to zero while everything else remains in tact.  You'll continue to be responsible for updating the plan documents during restatements and continuing to file the Form 5500EZ each year.  These cost may prove relatively small when compared to the guarantees in the annuity contract.

With that said, it's up to you to perform the cost-benefit analysis to determine whether or not it's worth it to continue to maintain the MPP.  Operationally, it is much smoother to terminate the plan has it has outlived its usefulness with respect to contributions.  But, if you have an investment tied to the plan, then operational efficiency would not be your highest priority.

Good Luck!