Many employers have traditionally sponsored both a money purchase pension plan and a profit sharing plan to reach a 25 percent of compensation deduction limit. Profit sharing plans had previously been limited generally to an annual deduction of 15 percent of compensation, thereby making the money purchase pension plan necessary to attain the 25 percent level.

Now that EGTRRA has increased the profit sharing deduction limit to 25 percent of compensation, the rationale behind the prior planning is outdated in most cases. Moreover, because a money purchase pension plan requires a fixed contribution level (profit sharing contributions can be completely discretionary), as well as burdensome annuity election features upon distribution of benefits (most profit sharing plans are exempt), the shift to a single profit sharing plan is being welcomed by many companies who sponsored combination plans.

Many of these companies are in the process of merging their money purchase plan into the profit sharing plan, or otherwise eliminating the duplication, expense and complexities generated by two plans -- where a single plan will now suffice.

The approach taken by a company that now sponsors both plans can vary depending on several factors (e.g., vesting issues, distribution options). Your NRS Account Manager would be pleased to discuss with you your company's particular situation in light of these factors, and work with you to merge the plans or otherwise eliminate the now-unnecessary duplication.

Another planning note: EGTRRA favorably changed the rules for employer tax deductions to provide that elective deferrals do not count against the deduction limit (e.g., 25%). Is there now any reason for an employer not to include a 401(k) feature in its profit sharing plan?