Money Purchase Taint on Conversion to Profit Sharing Plan (Posted July 22, 2004) Technical Tip 125: The following question and answer were from the IRS Q&A Session at the 2002 ASPPA Annual Conference: Regarding Revenue Ruling 2002-42, if you don’t have to fully vest money purchase accounts at conversion to profit sharing plan, are the forfeitures from the money purchase accounts, when reallocated in later years, subject to the money purchase restrictions because they were part of "the assets and liabilities that originated" in the money purchase plan? My initial reaction is of course not. Revenue Ruling 94-76 says if separate account is maintained, only transferred assets are subject to the "money purchase taint" and references 1.401(a) -20 Q&A 5 for acceptable separate accounting. There it says that if the plan is a transferee plan with respect to a participant, the QJSA rules don’t apply to other participant’s solely because of the transfer. This would seem to imply that the "taint" goes away when the originally transferred assets are reallocated to others as forfeitures. Response: We agree that there would be no taint. This is a clarification of our discussion at the ASPPA conference in San Diego in 2002. View all Tips © 2008 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.