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SIMPLE and 401(k) Plans in stock sale


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I don't work at all with SIMPLE Plans - client with 401(k) (my client) and another client with SIMPLE Plan are merging in a stock sale.  There will be a third, brand new Company [effective 01/01/2022] with a new EIN for all employees.  The new Company wishes to continue the 401(k) plan with the new Company as Plan Sponsor and terminate the SIMPLE Plan, which would happen regardless because there will be well over 100 employees after the merger.

I believe I understand the transition year, which in this instance will be the 2022 plan year.   However if all employees are now on the same payroll in 2022 (under the "new" Company and EIN) is it still possible to have the SIMPLE participants making SIMPLE contributions and the 401(k) participants contributing to the 401(k) Plan for the 2022 transition year?

Thanks in advance.

edited to add:  So is this a dumb question because of course they would all be on the same payroll for the transition year? 

Also - the SIMPLE participants are going to be excluded by amendment prior to the start of the 2022 plan year.  (Coverage is ok regardless.)


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The client with the SIMPLE plan now would have to continue as an independent entity to use the transition rule.  You have a brand new company and the only significance of the prior companies would be for service crediting.  i.e. you can't carve out employees who were covered under the SIMPLE and continue to have them participate in the SIMPLE while others participate in the 401(k).

Ed Snyder

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Thank you Bird.  So I'm clear - Even though the 401(k) client is just changing the Plan Sponsor and name on the 401(k) Plan to the "new" entity, there can be no transition year and the SIMPLE Plan must stop immediately?

P.S. Can you direct me to any cites that I can use to help explain this to the client?

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A portion of that Code section states as follows:

"the qualified salary reduction arrangement maintained by the employer would satisfy the requirements of this subsection after the transaction if the employer which maintained the arrangement before the transaction had remained a separate employer."

Both the SIMPLE Plan and the 401(k) Plan "satisfy the requirements of the subsection after the transaction....."   

If the client with

the SIMPLE plan has to continue as an independent entity in order to to use the transition rule, how is that possible in a merger or acquisition?

Now I am more confused.

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