Frozen 401(k) -- SIMPLE-IRA

[R. Butler]

Plan Sponsor wants to freeze the 401(k) and start a SIMPLE-IRA in 2003. (Can't figure out why they just don't terminate the 401(k)) Is this permissable? I don't see why not since no one would benefit under the 401(k), but just wanted to check.

[mbozek]

Its ok as long as the employer does not make any contributions to the 401(k) plan or allocate any forfeitures in 2003. Q- how is the er going to make salary reduction contributions to the 401(k) plan after year end. You should check this out.

[R. Butler]

I've never really actually seen a frozen 401(k), but would there be any further deferrals? The intent is totally freeze all contributions; if participants are eligible to defer, then they couldn't do a SIMPLE-IRA because they would be benefitting under a qualified plan.

Am I missing something? Again I never have seen a frozen 401(k) and don't really see how it is a good option.