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Termination of SIMPLE IRA - Required Disclosure


Guest pcohen
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In an acquisition, the target sponsors a SIMPLE IRA which will be terminated pre-closing. The transferred employees will participate in buyer's 401(k) plan post-closing. The joint DOL/IRS document entitled "Simple IRA Plans for Small Businesses" states under the heading "Terminating the Plan" that "[Y]ou must also notify your employees that the SIMPLE IRA plan will be discontinued." Where is this requirement in the law and is there a minimum notice period that must be satisfied.

Thanks.

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I'm not sure where that statement comes from. Since a SIMPLE IRA is an individual account plan not subject to IRC Section 412, then it is not a plan to which ERISA Section 204(h) or IRC Section 4980F apply.

However, on a practical level, you certainly should inform employees of the fact that no more deferrals are being permitted. Perhaps that is considered mandated by Section 101(h)(2), which could be read to require informing employees, at the start of the year following plan termination, that no more benefits will be provided and no more elections to defer will be permitted (ERISA Sections 101(h)(2)© and (D)).

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Guest Grumbles
I'm not sure where that statement comes from. Since a SIMPLE IRA is an individual account plan not subject to IRC Section 412, then it is not a plan to which ERISA Section 204(h) or IRC Section 4980F apply.

However, on a practical level, you certainly should inform employees of the fact that no more deferrals are being permitted. Perhaps that is considered mandated by Section 101(h)(2), which could be read to require informing employees, at the start of the year following plan termination, that no more benefits will be provided and no more elections to defer will be permitted (ERISA Sections 101(h)(2)© and (D)).

I have been having simliar issues. Some of the confusion comes from IRS pages such as http://www.irs.gov/retirement/article/0,,i...tml#termination

I have seen other joint pages that say things to what OP has described as well.

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You can also take a look at Section G (particularly Q&A G-1) in Notice 98-4. It specifically addresses the required notice prior to the annual election period in advance of a Simple IRA's Plan Year. I believe the termination notice requirement is the corollary to the otherwise applicable annual notice.

http://www.irs.gov/pub/irs-irbs/irb98-02.pdf

Of course, you would also need to comply with any notice provisions in the Simple IRA's Plan document and SPD.

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