SIMPLE IRA as a 1 Year "substitute"

[SMB]

Employer terminated its 401(k) Plan in July, 2003 in anticipation of its acquisition by another company, which utimately did not pan out. Final assets were not distributed from the terminated 401(k) Plan until July, 2004. Employer now wants to re-establish a 401(k) Plan, since the proposed acquisition was a bust. It is my understanding that, under the successor plan rules, this could not be done any earlier than August, 2005 - i.e., 12 months after the final distribution was made from the prior terminated 401(k) plan.

Would there be any problem with the employer establishing a SIMPLE IRA program just for 2005 - using a reduced 1% match - and then establishing a new 401(k) Plan effective January, 2006? The SIMPLE IRA would only have a one year run.

The employer's intent is to have a "salary deferral only" 401(k) Plan and was specificaly not contemplating making any employer contributions (matching or profit sharing). Though there is a required employer contribution under the SIMPLE IRA, I'm thinking that such contribution may be significantly (if not entirely) offset by the lack of administrative costs to establish and operate the SIMPLE IRA program.

Before broaching this approach with the employer, wanted to see if anyone else had any comments and/or suggestions.

Thanks!

[Gary Lesser]

The employer could establish a SIMPLE IRA for 2005, although the 60 day-period will extend into 2005. The employer could dicontinue the plan and adopt a 401(k) plan effective in 2006. The 401(k) would not be treated as a successor plan insofar as the Simple IRA is concerned.

[SMB]

Gary,

Belated thanks!

SMB