Defined Benefit and Simple

[Guest NPaleveda]

Can you have a cross tested DB Plan with a Simple Plan or must the Simple Plan be terminated?

[Tom Poje]

since a SIMPLE plan must be exclusive, I don't see how you can arrive at a situation of having both a SIMPLE and a DB plan in the same year.

[AndyH]

I think you could have both, but the exclusivity rule means that the Simple plan would not meet the requirements for tax favored treatment, i.e. not tax deferred and not deductible as retirement plan contribution.

So, for example, if a DB were the second plan, the Simple would not meet the requirements for tax favored treatment for the year, but the DB would be fine.

[actuarysmith]

Tom's answer is clearly correct. The code and regs are clear that if you sponsor a Simple plan, you cannot sponsor any other qualifed plan and retain the tax favored treatment of the Simple Plan.

See IRC 401(k)(11)©

AndyH is probably also correct. However, at the risk of stating (or asking) the obvious, what would be the point of sponsoring a Simple plan if it did not receive tax favorable treatment?

[AndyH]

I didn't mean to imply that Tom was incorrect. I was merely trying to supplement his answer.

What I was trying to point out is what I thought the ramifications would be if a company had a simple plan, then did adopt another plan and make a contribution to such a plan in the same year.

I have seen this occur. So, it is possible to have both. Not a good idea, and very problematic, but it is possible.