SunGard Relius

Termination
With a termination, all participants become fully vested and are entitled to a distribution from the plan. Participants could be given the option to rollover their distribution to another plan of the employer. If a participant elects a rollover, then the amounts rolled over would lose their character as money purchase pension plan assets (e.g., the distribution restrictions that apply to money purchase plans that are described below would not apply to the rolled over amounts). The money purchase plan would need to be updated for GUST, and if the termination takes place after 2001, it would need to be amended for EGTRRA as well.

Amendment or merger into a profit sharing plan (including a 401(k) plan)
For sponsors who only have a money purchase plan, the plan can be "converted" or amended into a profit sharing or 401(k) plan. If a sponsor maintains both a money purchase pension plan and a profit sharing plan, then the money purchase plan can be merged into the profit sharing plan.

Issues Associated With A Merger

1. Is full vesting required?
   It's not clear. There is no formal IRS guidance on the issue, and various representatives of the IRS have changed their opinion from year to year. The majority of benefits professionals do not think full vesting is required. One cannot go wrong by fully vesting participants in the money purchase plan contributions.

2. Are participants entitled to receive a distribution?
   No. Participants are not entitled to a distribution just because of the amendment or merger of the money purchase pension plan into a profit sharing plan.

3. Are the money purchase assets required to be separately accounted for?
   Yes. The money purchase plan assets retain their character as money purchase plan assets. Thus, the qualified joint and survivor annuity (QJSA) rules must continue to apply to those assets. Unlike assets that are attributable to a profit sharing plan, there is no way to amend the plan to eliminate the QJSA provisions from applying to the money purchase assets. In addition, a hardship distribution or an in-service distribution prior to a participant's normal retirement age under the plan may not be made from assets attributable to the money purchase plan.

4. Does the money purchase plan need to updated for GUST prior to the merger or is it sufficient to just update the resulting profit sharing plan for GUST?

   The following answer is verbatim from the IRS web site (http://www.irs.gov/bus_info/ep/determs.html#D2):

   It is the position of the Service that it is sufficient for only the 'surviving plan' to be amended as long as its amendments are written to also retroactively amend the now 'merged plan' to comply with the new tax law requirements. A favorable determination letter for the surviving plan may be relied upon with respect to whether the merged plans were timely and correctly amended for new tax law.

   With respect to current law, if two or more plans are merged prior to the end of each plan's GUST remedial amendment period, the plans may be amended to satisfy the GUST requirements in either of two ways:

   1. Each plan can be separately amended for GUST prior to the merger; or

   2. The requirement to amend for GUST can be satisfied through the surviving plan. In this instance, the GUST amendments must be adopted within the GUST remedial amendment period of the surviving plan and the merged plan(s) (see below), and the appropriate amendments must apply to each of the plans that have been merged into the survivor. Thus, some of the amendments to the surviving plan may apply to one or more of the merged plans and not to others, or may apply at different times to each of the merged plans. This would be necessary, for example, if different choices or elections were made in the operation of the merged plans prior to the merger.

      For example, if the merged plan provided for a QJSA (an IRC 411(d)(6) - protected benefit) while the surviving plan did not, the surviving plan must be amended to preserve this option for benefits accrued under the merged plan. The QJSA provisions of the surviving plan should also apply to the merged plan to the extent necessary to allow the plan to comply with current law prior to its merger into the surviving plan.

   One cannot go wrong by updating each plan separately. However, unless both plans have different dates on which some of the optional provisions of GUST were applied, all of the SunGard Corbel Inc. documents (prototypes and volume submitter plans) would comply with the IRS statements above so that just the resulting merged plan needs to be updated.

5. What impact will the merger have on the funding of the money purchase plan?
   The answer depends on the provisions of the money purchase plan and when the merger is effective. A contribution is not required to be made to the money purchase plan if the participants have been provided with an ERISA 204(h) notice on a timely basis and participants have not accrued the right to a contribution at the time of the merger.

   The IRS has also informally indicated that there is not a deduction or minimum funding problem if a contribution for the money purchase plan is actually made to the profit sharing plan after the plans have merged. For example, suppose an employer maintains both a profit sharing and a 10% money purchase plan. The employer wants to merge the plans in 2002 but wants to retain the 25% deduction limit for 2001. Based on the informal IRS position, the plans could be merged as of January 1, 2002, and the employer could make the 10% money purchase contribution to the profit sharing plan by the due of the 2001 tax return.

6. What action needs to be taken to merge the money purchase plan into a profit sharing plan?
   You must provide participants with an ERISA 204(h) notice and there must be an amendatory agreement to merge the plans. Note that a final Form 5500 must be filed for the money purchase pension once all assets have actually be transferred to the profit sharing plan. Form 5310 does not need to be filed with the IRS.

The forms are can be found in our Other Resources section.