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PS Termination


Guest boston431

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Guest boston431

Our financial advisor wants us to terminate our profit sharing plan (it's two years old) and put a simple plan in place. I thought there were some issues centering on "permanency" when you terminate a plan (e.g., you are supposed to establish a plan for it to continue and if you terminate a plan and then establish another plan without some time in-between, the second plan is deemed to be a continuation of the first plan, etc.). Does this apply in a situation where you are going from a profit sharing plan to a simple plan? Is there a specific way you are supposed to handle this? I found guidance on going from a money purchase plan to a profit sharing plan - but nothing involving simple plans.

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Is the advice to terminate well-founded, e.g., are the annual admin costs outweighing the overall benefit to participants......? Termination of the PSP and participants' rolling over to the SIMPLE plan would be allowable. I would just think twice before the PSP was scrapped.....

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Does the financial advisor stand to benefit in any way?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Participants cannot roll to SIMPLE IRA. Only SIMPLE contributions may be in a SIMPLE. Participants could roll to a traditional IRA

JEVD

Making the complex understandable.

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Guest boston431

Thank you for all the input. To answer a couple of questions . . . the advisor would not benefit from the termination of the PSP plan, but he would receive his fee for setting up and handling investments for the SIMPLE plan. The main reason for terminating the PSP plan is because it is not what they expected and they want to decrease admin costs by moving to a SIMPLE. Thanks again!

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As Mbozek states, the plan termination filing forms list the reasons that the IRS uses as a kind of "safe harbor." In addition, since it is a PS plan, it is my understanding that the IRS generally won't challenge the permanency issue if it has been in force for at least 2 years, since under a PS plan you can have withdrawals under the "2 year rule" anyway. My knowledge of this is purely hearsay - I'm not aware of any ruling or citation that supports this, although maybe someone else is. We've never had a PS plan termination questioned for permanency.

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. . . the advisor would not benefit from the termination of the PSP plan, but he would receive his fee for setting up and handling investments for the SIMPLE plan.

This seems contradictory to me.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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