Can a mppp contribution be increased for a part of the plan year?

[Guest]

A company with a June 30 fiscal year maintains a MPPP with a December 31 plan year. The company wants to raise the contribution to 8% from 6%, effective July 1. In other words, if the amendment is effective July 1, 2000, can a 6% contibution be made on compensation in the first 6 months of the plan year and 8% on compensation in the second six months, effectively 7% for the plan year? The reason is that the increase was budgeted for the company fiscal year beginning July 1, 2000.

[Erik Read]

Seems odd that you would budget for more than the formula with a Money Purchase Pension Plan - usually only hear of increase's or decreases with Profit Sharing Plans in the budgetting process.

I think don't think you can use two allocation formula's in the same year for a MPPP. I've never seen it done. Unless you could get creative with the formula and show something like first 1000 hours at 6% last 1000 hours at 8%... not sure that would fly either.

The other issue I would have is with regard to the amendment, does the company plan on amending the formula again in the following years or is this a one time rate increase?

[Guest mo again]

I'm not sure there's a legal reason why you couldn't change it. Anyone, let me know if you are aware of one. Certainly you can freeze a plan mid-year and have a different allocation rate (0%) afterwards. You may, however, be bounced out of safe harbor design and have to general-test.

[Guest PAUL DUGAN]

I do not think there is any reason that you can not make this amendment. However I think you would have to test since in many companies the highly compensated get large bonuses at year end. Cross testing may help even in these situations.

[Guest]

This intended to be a one-time increase. The bonus issue was considered, but this is a non-profit organization and this is not an problem. We intend to rate group test. There a few HCE's due to compensation. Anyone still see any problems?