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SIMPLE IRA after acquisition


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Company A has maintained a SIMPLE IRA since 1999. In 2004, Company A acquires another company and the total employee count now exceeds 100. The transition period runs out 12/31/06 to convert to some other qualified plan.

During 2005, a new entity is formed (Company B) which acquires the stock of Company A along with 5 other previously unrelated companies. Some of the employees of Company A will remain on that payroll, while the others will be moved to the payroll of Company B, the parent, during 2005.

Company B expects to set up a 401(k) for the entire group effective 1/1/06. But, for the balance of 2005 Company B wants to continue the SIMPLE IRA for those employees moved from Company A to its payroll.

Can Company B adopt a SIMPLE IRA now for the benefit of the transferred employees? Or, because Company B did not maintain a SIMPLE before the acquisition, is it precluded from establishing one now since there are more than 100 employees in the controlled group? If yes, how do they continue the SIMPLE benefits fro the transferred employees through 12/31/05? Can Company B just make contributions to the existing accounts without signing Form 5304-SIMPLE?


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