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Simple to 401k Invalidation Followup Question


Guest Grumbles
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Guest Grumbles

After reading the last posts [Link], I have convinced everyone that the Simple invalidation is not worth the trouble. Instead, we are looking at terminating the Simple and starting the 401(k) at the beginning of next year. However, this seems to bring up a whole new can of worms regarding the notification to employees that the plan was being terminated. It seems that notice was supposed to be given at the beginning of November; is this an unavoidable date or are there ways to cure this problem since we are creating the new 401k?

Thanks for the help, I am new in the area of emplyee benefits and am just starting to wrap my brain around everything.

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The amendment terminating the plan effective as of the beginning of the following plan year could be made before the beginning of the next plan year. Obviously, no contributions will be made for the 2009 plan year under the Simple-IRA plan. The termination should be communicated to participants as soon administrativel possible, and preferably, before the next plan year begins. The trustee/custodian should also be notified (after the last contribution is made for prior year) that the plan was terminated effective date 12/31/08 and that they should no longer accept any contributions under the employer's plan.

Alternatively, without any formal termination, the plan will "not be treated" as a QSRA "for any year if the employer maintains...." If any notices were given, they can be changed/recinded because of the exclusive plan rule. [iRC 408(p)(2)(D)]

Does the plan contain any provisions regarding amendments or this situation?

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Guest Grumbles
The amendment terminating the plan effective as of the beginning of the following plan year could be made before the beginning of the next plan year. Obviously, no contributions will be made for the 2009 plan year under the Simple-IRA plan. The termination should be communicated to participants as soon administrativel possible, and preferably, before the next plan year begins. The trustee/custodian should also be notified (after the last contribution is made for prior year) that the plan was terminated effective date 12/31/08 and that they should no longer accept any contributions under the employer's plan.

Alternatively, without any formal termination, the plan will "not be treated" as a QSRA "for any year if the employer maintains...." If any notices were given, they can be changed/recinded because of the exclusive plan rule. [iRC 408(p)(2)(D)]

Does the plan contain any provisions regarding amendments or this situation?

The amendments echo the 60day notice requirements. I guess I am still not clear on how these affect/restrict the termination of the plan. Do the notice resatrictions disallow the termination of the Simple or do they just require additional time to allow people to setup contributions for the new 401(k) that will be setup?

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The 60-day notice and the termination notice are different notices. The 60-day notice is not needed (or should be undone if issued) because the plan will not be a QSRA for 2009 under the exclusive plan rule.

The Simple plan does not have to be terminated. It just won't be effective for 2009 (and later years if the 401(k) is active). The 60-day notices (if given) is being trumped by the new plan. If the new plan is ever terminated, the SIMPLE can be used the following year provided the 60-day notices are timely provided.

Does this help?

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Guest Grumbles
The 60-day notice and the termination notice are different notices. The 60-day notice is not needed (or should be undone if issued) because the plan will not be a QSRA for 2009 under the exclusive plan rule.

The Simple plan does not have to be terminated. It just won't be effective for 2009 (and later years if the 401(k) is active). The 60-day notices (if given) is being trumped by the new plan. If the new plan is ever terminated, the SIMPLE can be used the following year provided the 60-day notices are timely provided.

Does this help?

That is crystal clear and enormously helpful.

While I have your (or anyone's) ear, I will toss out one last question. I am new lawyer (2 months in) and am getting the occassional research project regarding employee benefits. I have taken a vareity tax courses in my background, but am just learning about employee benefits on a day to day basis with no previous classroom experience. I am finding that I spend more than half of my research time just trying to figure out how the tax and erisa rules interact and what law is involved with these questions. What resource would you suggest looking to for a solid introduction to these plans from a legal prospective? At this point, getting a clearer view of the "big picture" would be great so that I may more efficiently find the intricate answers that will be popping up.

Thanks again for all your help, it is GREATLY apprciated.

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