12AX7

There would still be an audit for the current plan year. Next year perhaps not, if under 100 participants at the beginning of the plan year.

This is from the IRS Employee Plan News (Summer 2009 Edition): SIMPLE IRA plans are maintained on a whole-calendar-year basis. A SIMPLE IRA plan must continue for the entire calendar year, funding all contributions promised in the employee notice. An employer can terminate its SIMPLE IRA plan prospectively, beginning with the next calendar year, after it has informed its employees that there will be no SIMPLE IRA plan for the upcoming year. If you choose to terminate your SIMPLE IRA plan, notify the financial institution that you chose to handle the SIMPLE IRA plan that you will not be making contributions for the next calendar year and that you want to terminate the contract or agreement with it. You must also notify your employees within a reasonable time before their 60-day election period that you are discontinuing the SIMPLE IRA plan. You do not need to give any notice to the IRS that the SIMPLE IRA plan has been terminated.

Thanks for the clarification. I was looking at this only as an eligibility issue.

Why would eligibility become a BRF issue? Isn't that all covered under 410 (a)? This is not an answer to the question, just another question or two.

I think somehow the original question has not been answered in full. The plan must correct excess contributions by either distributing the excess by the end of the current plan year, or the company makes a full QNEC. I go along with the 10% penalty at this point if the distribution is made. I assume the testing has been done correctly and the amounts in question are really not excess deferrals (in excess of the 402(g) limit for the year. These are very basic testing procedures, so please check with individual(s) that work on the compliance aspects of the plan for further techinical consulting.

I knew Tom would have the correct cite. I only know what you can and can't do.

I say that you cannot defer if there is no income (plan comp). Same would be true if any other employee had no W-2 wages for the year.

The underlying issue is that 401 (k) contributions are still considered to be employer contributions for purposes of determining if Key EEs received an allocation for the year.

Let's take this a step further. What if the loan were from a Salary Deferral source? I would even more hesitant to deem a distribution before 59 1/2, if the participant was still in service.

In my opinion, it could be a violation of the terms of the plan, and a breach of fiduciary responsibility to stop payment of the loan. I've heard others argue against my opinion, especially where the participant would otherwise have a distributable event. If no distributable event is present, I would not default the loan if the participant was still in service with the plan sponsor.

Tom, don't you mean unless there *are* other contributions beside the Safe Harbor contribution. Maybe I'm reading your statement a little lopsided, but if the only contribution for the plan year is the Safe Harbor contribution, the the Top Heavy minimum contributions are deemed to have been met. The plan is Top Heavy, regardless of how the minimum contributions are met.

So after all this, much ado about nothing? http://www.relius.net/News/TechnicalUpdates.aspx?ID=562

I say that an amendment made currently can actually take these participants out of current participation status until they satisfy the new requirements. Any benefits that may have accrued up until the time of the amendment cannot be retroactively reduced. Any new short-service employees starting work after the effective date of the amendment will be subject to the new rules.

Going forward, why not amend the plan to allow full-time employees to have immediate entry and part-time employees must complete a year of service. Since participation is not a protected right in the plan, you can knock these few employees out in 2011.

If the wife from Company A had a baby with each of the two businessmen from Company B (while still married to the Company A guy), then I would say you have a controlled group. Sorry, couldn't resist this now that 3/15 has passed. I actually had a similar circumstance once, but not to this extreme.

The partners have service and earned income (plan income) for 2010, right? You seem concerned that perhaps one of those elements are missing?

Larry, you answered my question. I wasn't sure if there was an exemption if for example a broker sponsored a plan that he was also eligible to participate in.

Would it be considered a PT if the broker (Plan Sponsor) was an employee, but was not benefiting from the plan?

At this point, would it not be easier to just process the in-service distribution?

Discretionary amendments should not be paid from the plan. Amendments to preserve qualification can be paid from the plan. Nonetheless, what you are describing can not happen, at least in our plans. I take it your plan document is silent on the issue?

That's my problem. I cannot find a cite or other guidance on this point. On the surface, it appears that something is to be taken away by the amendment, just as if the comp definition were changed for the employer contributions, where there is no accrual requirement. This client is difficult to reason with sometimes, so it's better to try and find a solution.

The Basic Plan Document we have explicitly would prohibit payments going to the employer.

I'm bumping this post in hopes that someone would have insight on this question. Thanks !

I'm a little confused about the plan year. You said that there "was an audit for 2009 (01/01/2009-11/30/2009)." Perhaps I'm mistakenly assumed that there was a short plan year and that is why I questioned the plan year. Please clarify the plan year that you are concerned about e.g. 1/1/10 - 12/31/10.

How many participants were in the plan as of 12/01/09? I'm assuming you're inquiring about the plan year ending 11/30/10?