Merger of pension plan into profit-sharing plan is not partial termination.

• Author: Fiore, Nicholas J.

Two situations address money-purchase pension plans (MPPPs).

Situation 1. Employer J maintains an MPPP qualifying under Sec. 401(a). The plan provides that, on a termination or partial termination of the plan, all affected participants will vest 100% in their account balances. J converts the MPPP into a profit-sharing plan that covers the same employees and contains the same vesting schedule. The plan also provides that assets and liabilities in the profit-sharing plan that originated in the MPPP retain their MPPP attributes, in accordance with Rev. Rul. 94-76.

Situation 2. Employer L maintains an MPPP qualifying under Sec. 401(a). This plan provides that, on a termination or partial termination of the plan, all affected participants will vest 100% in their account balances. L also maintains a profit-sharing plan qualifying under Sec. 401(a). L amends the MPPP to cease future employer contributions and to merge the MPPP into the profit-sharing plan in a transaction that satisfies Sec. 414(1) requirements. Following the merger, the profit-sharing plan covers the same employees and contains the same vesting schedule as the MPPP. Simultaneously, L amends the profit-sharing plan to provide that assets and liabilities transferred from the MPPP to the profit-sharing plan retain their MPPP attributes, in accordance with Rev. Rul. 94-76.

Analysis

Sec. 411(d)(3) requires that a plan provide that, on its termination or partial termination, the rights of all affected parties accrued to the date of such termination or partial termination (to the extent funded as of such date) or the amounts credited to the employees' accounts, are nonforfeitable.

Regs. Sec. 1.411(d)-2(b)(1) provides that whether or not a partial termination of a defined-contribution or defined-benefit plan has occurred depends on the facts and circumstances. Such facts and circumstances include the exclusion (by reason of a plan amendment or severance by the employer) of a group of employees who have previously been covered by the plan and plan amendments that adversely affect the employees' rights to vest in plan benefits. Regs. Sec. 1.411(d)-2(b)(2) contains a special rule providing that, if a defined-benefit plan ceases or decreases future benefit accruals under the plan, a partial termination will be deemed to occur if, as a result of such cessation or decrease, a potential reversion to the employer maintaining the plan (determined as of the date such cessation or decrease is...