existing company joining a MEP... terminating current plan?

[AlbanyConsultant]

Company F sponsors a 401k PS plan and wants to join a MEP.  Can they terminate their current plan and roll the money into the MEP as a rollover contribution (I don't think they can take it out due to successor plan rules)?

Of course, they want to do this immediately... and both plans are SHNEC.  I figure as long as they give each person 3% of total comp for 2024 (probably all into the MEP), that's what counts.

Any other pitfalls?

Thanks.

[MoJo]

No.  The MEP would be a "successor plan" and since a successor plan exists, there is no distributable event from the existing plan.  Easiest approach is to merge the existing plan into the MEP plan.

[AlbanyConsultant]

Merging presents different problems, right?  Maybe some assets aren't allowed (SDBA in F's plan, all on a RK product for the MEP), different money types... Seems easier, if we can get the F people on board, to just terminate, liquidate, and move cash.

[MoJo]

49 minutes ago, AlbanyConsultant said:

Merging presents different problems, right?  Maybe some assets aren't allowed (SDBA in F's plan, all on a RK product for the MEP), different money types... Seems easier, if we can get the F people on board, to just terminate, liquidate, and move cash.

Yes.  Actually working through those issues in a different scenario.  In any event, if the assets can't transfer in-kind, go to cash.  We do that all the time when one of clients acquires another company with an existing plan.

[Paul I]

The company is making the decision to move to a MEP, and the company is picking the MEP as the service provider.  The company is responsible for knowing the consequences of this decision before they sign documents and formally join the MEP. 

If the plan is going to merge into the MEP, the company also should take a look at any benefits in their existing plan that are protected benefits and ask how they would be handled in the MEP.  These days,  this is ripe for confusion and misinformation given that plan sponsors can make administrative decisions to adopt and apply plan features made available in recent legislation, but the plan sponsors do not have to incorporate these plan features in the plan document until later.

If you are feeling magnanimous, consider doing the company a favor - BEFORE they sign up for the MEP - by sharing the questions they should be asking the MEP provider to help the company decide if the MEP provider is a good fit for the company's employees.

[AlbanyConsultant]

On 8/23/2024 at 11:05 AM, Paul I said:

If you are feeling magnanimous, consider doing the company a favor - BEFORE they sign up for the MEP - by sharing the questions they should be asking the MEP provider to help the company decide if the MEP provider is a good fit for the company's employees.

I am in fact scheduled to review their Powerpoint presentation to potential new MEP members after 10/16, and this was near the top of my list to make sure was in there.

[jsample]

I have always believed, I do not have citations, that a stand-alone plan into a MEP continues on as the same plan.  A stand-alone plan into a PEP formally terminates and a new plan is established in the PEP.  The termination of the standalone plan going into a PEP does not create a distributble event and all balances transfer into the PEP.

[Paul I]

@AlbanyConsultant do you know the type of MEP that Company F wants to join?  Is it:

• an association retirement plan?
• a professional employer organization (PEO) plan?
• a pooled employer plan (PEP)?
• some other multiple employer plan (e.g., among related employers that are not in a controlled group)?

For the first 3 types, the association, PEO or PEP will dictate what the Company F will be allowed to do if they join the MEP.

If the MEP does not allow SDBAs, then Company F will need to assess the importance to them of that investment option.

If the MEP supports all of the existing protected benefits in the Company F plan, then Company F likely merge their plan into the MEP through a trust-to-trust transfer.

If the MEP does not support all of the existing protected benefits in the Company F plan, then Company F likely will need to freeze their plan, fully vest anyone who is not already vested, merge into the MEP those benefits that the MEP will support, and keep the frozen plan around until all participants are out of the plan.

If the MEP is the "other" type, then Company F will need to sit down with the MEP sponsor and work through all of the details.

[AlbanyConsultant]

20 hours ago, Paul I said:

@AlbanyConsultant do you know the type of MEP that Company F wants to join?  Is it:

• an association retirement plan?
• a professional employer organization (PEO) plan?
• a pooled employer plan (PEP)?
• some other multiple employer plan (e.g., among related employers that are not in a controlled group)?

For the first 3 types, the association, PEO or PEP will dictate what the Company F will be allowed to do if they join the MEP.

If the MEP does not allow SDBAs, then Company F will need to assess the importance to them of that investment option.

If the MEP supports all of the existing protected benefits in the Company F plan, then Company F likely merge their plan into the MEP through a trust-to-trust transfer.

If the MEP does not support all of the existing protected benefits in the Company F plan, then Company F likely will need to freeze their plan, fully vest anyone who is not already vested, merge into the MEP those benefits that the MEP will support, and keep the frozen plan around until all participants are out of the plan.

If the MEP is the "other" type, then Company F will need to sit down with the MEP sponsor and work through all of the details.

The MEP is sponsored by an HR-type entity, and all of the other adopting employers are businesses that they provide services for.  I don't *think* it's a PEO plan, so I'd say it's the last kind (unless that doesn't sound right and I'm totally wrong).

Historically, the MEP sponsor has only allowed new companies to bring in cash when they come in... but there have been very few in the past couple of years (we're TPA #3 in four years!), as most of the new adopters have not had a plan before and/or are new businesses, so this is generally not an issue.  Potential adopters are told that the plan provisions are X, Y, and Z, and you don't get to make any changes when you join (though I have told MEP sponsor that new adopters can waive the YOS eligibility requirements one-time when they sign up as long as that is in the adoption resolution).

I checked with the MEP sponsor, and they have never told anyone they had to freeze an old plan.  Not that I completely trust the prior TPAs (there's a reason they're gone!), but I'd like to advise them correctly going forward.