A client making a nonintegrated 10% contribution to a money purchase plan wants to adopt a safe harbor 401(k). Both plans will be "paired" standardized plans. It is our understanding that the safe harbor 3% nonelective contribution be satisfied in the money purchase plan, but several questions have arisen - Will the current 10% pension contribution satisfy the safe harbor, or must the pension % be raised to 13? Also, participants are required to complete a minimum of 500 hours of service to qualify for a pension contribution, but no such requirement exists for the safe harbor contribution - can this be rectified? Will the minimum funding standard requiring pension contributions be made not later than 8-1/2 months after the end of the plan year also apply to the safe harbor plan?

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The 401(k) plan can qualify for safe harbor via a money purchase plan contribution IF the mp contribution meets all of the requirements, i.e. it must be at least 3% of compensation, must be vested 100% at all times and must be provided for ALL participants, no last day or minimum hours requirement. Also the participant notice must be given timely.

Don't forget that safe harbor matching contributions and safe harbor nonelective contributions must be subject to the withdrawal restricitons of Section 401(k)(2)(B) and 1.401(k)-1(d). This would require substantial changes to most existing money purchase plans before their contributions could be used to satisfy the safeharbor provisions.

If the safe harbor nonelective contribution has been provided to the money purchase plan, can the plan sponsor terminate the plan and thereby triggering a distributable event? Alternatively, can the plan sponsor spin the safe harbor nonelective contributions off to the 401(k)/Profit Sharing Plan, terminate the money purchase plan and distribute the account balances attributable to the money purchase plan assets?

Thank you,
Bob Elgidely