any loopholes to the "SIMPLE plan is the only plan" rule?

[MR]

lets say an employer sponsors a SIMPLE IRA plan and turns out to have over 100 employees. does this somehow allow them to convert to traditional 401(k) mid-year to "correct" the problem?

[Gary Lesser]

This is possible; with all SIMPLE IRA contributions becomming excesses. Didn't they know on 1/1 they had over 100 eligible employees last year??!!??

[MR]

they're not my client yet - i'll have to ask that when i meet them. what would happen to the simple contributions already made in 2002?

[R. Butler]

Did they always have over 100 or did the employee account become 100 in a subsequent to establishing the Plan? They have a 2 year grace period if they established plan and then subsequently became ineligible.

[Appleby]

True, but as Gary stated earlier, if any other plan is established in 2002, all the SIMPLE contributions made in 2002 will become excesses.