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Stopping employer SIMPLE contributions


Guest bmurphy

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Guest bmurphy

Employer has an existing SIMPLE - due to cash flow problems they are looking to stop ER contributions for a period of 12 months. I don't believe they can do this without terminating the plan for ALL contributions. If this is correct what is the correct procedure to terminate the SIMPLE? I would think they could "re-adopt" the plan again at a later date?

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Although SIMPLE IRA plans are established with the intention of being on-going, the time may come when a SIMPLE IRA plan no longer suits the business’s purposes. In a joint IRS/DOL publication, the IRS and DOL stated that to “terminate a SIMPLE IRA plan, notify the financial institution that you will not make a contribution for the next calendar year and that you want to terminate the contract or agreement. You must also notify your employees that the SIMPLE IRA plan will be discontinued. You do not need to give any notice to the IRS that the SIMPLE IRA plan has been terminated.” No further guidance is provided. [iRS Pub 4334, Simple IRA Plans for Small Businesses, p 5 (Sept 2004)]

It would appear that the termination amendment must conform to the notifications provided for the plan year, therefore the termination can not be made effective until January 1, 2006.

If an employer (or predecessor employer) previously maintained a SIMPLE, it may establish a SIMPLE only effective on the following January 1. [Notice 98-4, Q&A K-1, 1998-2 IRB 26] Thus, the November 1 notification deadline must be met if a new SIMPLE is adopted. Hope this helps.

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Guest bmurphy

Thanks, Gary, for the information!

I was wondering if you might be able to respond to my post "Deferral of one-time bonus" made last week. Appelby responded to part of my inquiry but deferred on the rest.

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