Client has an Money Purchase Plan and now wants a 401(k). Can they ha

[Guest michaelv]

Client currently has a Money Purchase Pension Plan but now also wants a new 401(k) plan. Since the client desires to have only 1 plan, they have suggested merging the Money Purchase Plan into the new 401(k) Plan. Can this be accomplished?

I think an important factor here would be whether or not the client wants to continue to fund the money purchase portion. If the answer is no, then wouldn't a MP merger be any more advantageous than an MP termination? If the answer is yes, will the client be prevented from having the MP and the 401k in 1 plan, since I recall reading that MP plans cannot have a 401(k) feature? Is there a distinction in that if a 401k feature is prohibited in a MP plan, an MP feature is equally prohibited in a 401k Plan?

Thanks for any comments.

[R. Butler]

A 401(k) feature cannot be part of a money purchase plan. A money purchase plan could be amended to a profit sharing plan with a 401(k)feature.

[Moe Howard]

Your client will have to adopt a new profit sharing plan (with a 401-k feature in the profit sharing plan). If client no longer wants the MPPP, then client should terminate the MPPP.... However, all MPPP participants will automatically be 100% vested upon termination of the MPPP.

[Guest michaelv]

r. butler: That seems to be rather bizarre; a MP Plan cannot have a 401k feature, but a 401(k) Plan can have an MP feature. Any thoughts on what the difference is between these 2 arrangements and why 1 is not allowed while the other is?

moe howard: Does this mean then that, given this situation, if the client wants to continue MP contributions and also have 401(k) contributions, they will have to continue to maintain the MP Plan and also start a new 401(k) Plan? On the other hand, if the client does not want to continue contributions, the new 401(k) Plan will still be established, and the existing MP Plan can either be terminated or merged into the new 401(k)?

[R. Butler]

My previous post must not be clear. A money purchase plan CANNOT contain a CODA. I did not mean to infer that the opposite was true. Technically I don't believe there is such thing as a "401(k) plan" 401(k) is a feature of a profit sharing plan.

I could be missing something, but I disagree with Moe Howard that you must "terminate" the MP plan and a adopt a new profit sharing plan. As long as the annuity features of the MP plan are preserved, I don't see any reason that the MP plan could not be restated as a Profit Sharing Plan. I have seen it done many times.

[Moe Howard]

Yes you are correct. The MPPP may be merged into the PS Plan rather than terminating the MPPP. However, merger (as opposed to termination) could not be allowed if the PSP document allows "in service distributions". I'm not sure what you mean by "restated".