Can a Money Purchase Pension Plan be merged into a 401(k) plan?

[Guest Tara Curran]

A company has a Money Purchase Plan and a 401(k) plan. The Company wants to terminate or merge the MPP into the 401(k) plan for ease of administration. Can the two plans be merged so the assets are simply transferred between plans with no acceleration of the vesting schedule (i.e. 100% vested upon termination of a plan)?

[Guest]

Tara, it seems that such a merger would result in a "significant curtailment" of benefits that upon IRS audit the Service might conclude that the plan has undergone a partial termination resulting in vesting of the participant's account balances.

[Guest JimD]

I think its possible. Whether there is a partial termination is a facts and circumstances determination. Key criteria are that the merger creates no reversion to the employer, no prohibited discrimination and no significant reduction in participants. Usually these situations involve an employer where the same employees are covered under each plan. You didn't ask but the plans need to be amended, 204 notice given, review if you have to file 5310-A and protected benefits retained, etc. And of course you can file for an IRS determination letter on the amendment.

[actuarysmith]

We have actually done this in the past.

However, there are a couple of items that you need to keep in mind -

1) since you are not terminating the MP and rolling into the 401(k) you will need to preserve the annuity options in the plan - at least on the MP "rollover" portion,

2) the in-service withdrawal privledges may be different for this source of money as opposed to the others-

3) you will still need to file 2 5500's in the year of merger (one on the old MP plan for a partial year showing 0 ending balances, another on the new merged plan).

4) I am not at all sure what you would need to do with the old MP document - Normally upon termination the plan needs to be amended or restated to bring it into compliance with GUST, however, in this case the new merge plan will presumably comply with GUST when the required restatement occurs........... Anyone else have any thoughts on this last point?

[John A]

Can a money purchase plan be amended to become a 401(k) plan, freezing the money purchase source?

[Jean]

I not sure if this will get you the result the Plan Sponsor wants, but amend the money purchase to 0% contribution rate. This will eliminate the need to merge, but now you have two plans to administer.

[david rigby]

Yes, but watch out for top-heavy.

[PMC]

Re- the cessation of benefit accruals - Employer wants to merge their MPP into their PSP. Both have calendar year/ plan years. They are both on a Standardized AA. They want to merge effective 4-1-01. The MPP calls for an employer contribution of 4.5% of each participant's compensation for the Plan Year.

Can the employer merge the plans as of 4-1-01, fund the MPP through that date, based on participants' compensation through 4-1-01? (All proper notices, 5500, GUST amendment will be done for the MPP.)Basically ending the MPP plan year at 4-1-01.

Or, would the employer have to continue to maintain and fund the MPP throughout the calendar/plan year and use the compensation for the entire year and then merge the 2 plans at the beginning of the next plan year?

[Richard Anderson]

I seem to recall reading somewhere that you can't merge a standardized mp into a standardized ps. I could be wrong, my memory is not that good.