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"frozen" plan


stevena

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I have a profit sharing plan that set up a SIMPLE in the same year. They say they could do this because the PSP was "frozen". There are no deferrals, this is ER PS only.

Is "frozen" an actual term? What makes a plan "frozen"? Do you need to do an amendment or anything to "freeze" a plan?

The PSP has not had contributions in a 2 years.

Thanks for any help.

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a profit sharing plan only has a discretionary contribution - therefore there is nothing to freeze. However, if contributions are not substantial and recurring (no guidelines what this would be) then the plan would be considered 'terminated' and all participants would become 100% vested. hopefully everyone is 100% vested right now or forfeitures are used to reduce plan expenses. Otherwise you will have to allocate forfeitures and that smells like trouble if you also have a SIMPLE

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Do you think 2 years of no contributions would violate the "substantial and recurring" rule? They had contributions every year before that...they just ran into financial problems.

Apparantly what they set up was a SIMPLE IRA, not a SIMPLE 401(k).

There are no forfeitures in this plan so its a non issue.

So are they violating that exlusive plan rule? I know the wording says you cannot "maintain" a SIMPLE plan and another plan. In my opinion, the PSP has been maintained, there just arent any contributions. But in the employers train of throught, he hasnt put contributions in in two years so he hasnt been maintaining.

At a loss as to what to do...

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Under IRS rules an er does not have to make discretionary contributions to a PS plan in years where there is no profit or in which a contribution has been made in the last 5 years.

Under 408(p)(2)(D) a simple plan cannot be established where the employer maintains a qualified plan in which contributions were made or benefits accrued for service in any year the simple plan was effective. Thus a Simple plan can be maintained in any year that no contributions are made to a quaified plan.

mjb

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Thank you. I thought to set up the SIMPLE I would have to formally freeze the PSP, meaning that no new enrollees could come into the plan. Ive got new people coming into the PSP in the year the SIMPLE was established as well as subsequent years that the SIMPLE was in place. My thought was if it was not "maintained", how come I gave out statements to those new enrollees in the plan who became newly eligible (albeit with zero balances, but given out to show vesting and participation)? I assumed in order to not "maintain" it that i would have to not let anyone new into the plan.

I didnt realize "freezing" meant contributions only. Thanks for the clarification.

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mbozek,

turns out this plan is being audited (oh great). the auditor wants the info on the PSP and the SIMPLE. So now my question is, does it matter that i did not code the PSP as a frozen plan when the 5500 was filed for the past few years? and i do have the participant counts going up every year for the PSP.

will this matter, do you think, because there are no contributions to the PSP?

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A plan can have participants without making any contributions. Under 408(p)(2)(D) a SIMPLE plan cannot be maintained in any year for which contributions are made or benefits are accrued under a qualified plan. Accrual would include any allocation of forfeitures to participants in the PS plan. Nothing else is relevant.

mjb

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