Can you freeze a SIMPLE 401(k) Plan?

[Guest UKH]

I have a Plan where the company can no longer maintain a SIMPLE 401(k) Plan. The company was doing 100% match on the first 3% deferred.

The company can no longer make the SIMPLE matching contributions. Hence the company plans on freezing the Plan until things got better.

If freezing was allowed do you then go back to top heavy testing and when can you re-freeze it?

Something tells me that you can not freeze a SIMPLE 401(k) Plan. One would first have to convert the SIMPLE to a regular 401(k) Plan as of the next January 1 and once you convert it to a regular 401(k) plan would you be able to freeze the Plan.

I would appreciate if one could share their experience if they have run into a similar situation or guide me in the right direction.

Thank you.

[Guest earthy]

I think an employer may freeze a Simple 401(k). I believe the Plan ( post-freeze) is no different than any other "profit-sharing" plan. See Revenue Ruling 69-157.

If contributions post-freeze are not substantial and recurring, than the Simple 401(k) would be deemed to have terminated.

On the matter of top-heavy, any frozen plan must contain top-heavy provisions in the event minimum required contributions are required for non-key employees. Treas. Reg. 1.416-1, Q&A T-5.

Since no key employees will be getting the match under this Simple 401(k) upon freeze, the top-heavy matter should be moot.

[actuarysmith]

Earthy, your comment on top-heavy being moot may not be quite right...........

Just because Key's will not be getting a match under a frozen simple does not mean that there would be no top-heavy minimum.

A key employee is deemed to benefit even if they contribute out of salary deferrals, regardless of whether there is a match or not. Since some of the Key's will presumably have contributed (i.e. benefitted) , the employer would be required to provided the top-heavy minimums if the plan were in fact top heavy.

In other words, your comment about the match and Key employees is irrelevant.

[Guest earthy]

I was only addressing the 401(m) portion of the Plan and not the CODA.

You are correct in that the salary deferral contributions under 401(k) are also subject to the top-heavy rules; however, I inferred from the original question that the CODA would not be continuing post freeze --- either safe-harbor or non-safe harbor.

That is why I prefaced the top-heavy matter to begin with.

[Guest UKH]

I agree that if you freeze the SIMPLE plan mid-year then you would have to run the top heavy test. What about ADP/ACP testing?

Would you also agree that upon freezing the Plan the employer can unfreeze the SIMPLE Plan only as of the first day of the Plan year (Jan 1st). I do not think the employer would be allowed to unfreeze the Plan after one quarter and start contributing as per SIMPLE plan rules and get away from top heavy testing or ADP/ACP.

Thank you as always for participating in the discussion.

Happy Halloween to all BenefitsLink subscribers!

[Guest earthy]

I believe you are correct. The Plan would in effect be frozen until January 1st of the following calendar year.

I also believe that ADP/ACP testing would be needed for the calendar year(s) that the Plan is treated as frozen.

Good luck!