Changing a simple401k to just a 401(k)

[Guest BHicks]

I have a client that wants to get rid of his SIMPLE plan and adopt a regular 401k plan. He wants to establish a 401(k)PSP as part of a floor/offset arrangement with a new DB plan. He currently participates in the SIMPle plan but does not want to participate in the 401(k)PSP. He wants to do this by august of this year. Can't he just terminate the Simple plan and start a new 401k plan?

Also, no contributions have been made yet for any of the SIMPLe participants this year. I've seen posts relating to amending the plan, but I really need to know what the proper procedure is here.

Thanks...

[goldtpa]

A SIMPLE Plan must be the only plan an employer maintains. A SIMPLE-401(k), may be amended, revoking the election to be considered a SIMPLE 401(k). The amendment can be executed at anytime during the year, however the amendment would not be effective until the start of the next plan year.

I believe the same holds true for SIMPLE-IRAs, you can't terminate them in the middle of a year.

Thus you would have to terminate the SIMPLE at the end of the year and start your 401(k) in 2004.

[Gary Lesser]

If no SIMPLE contributions have been made for the year to a SIMPLE-IRA, the plan can be abandoned (state law issues aside). There are no complications. OTOH, if it's a 401(k) Simple, then any changes can be effective no earlier than the following calendar year.