SIMPLE & SH 401(k)

[doombuggy]

A company that we provide TPA services to for their safe harbor 401(k) plan has been purchased by another company, which has a SIMPLE. Some people have deferred (I am assuming into their respective plans) for the current year. The question I am being asked is can the SIMPLE be dropped and the SH 401(k) plan be adopted for everyone? What about new hires? These issues were apparently not addressed by the merger/acquisition lawyer that they used. My boss (who asked me to post this) knows that they can merge on 1/1/07, but she is concerned about this year.

The TPA firm that I used to work for was originally bought out in January, 2003, and we were required to stop contributing to our SH 401(k) as of the date of aquisition. We were then allowed to enter the purchaing company's 401(k) plan on the next quarterly entry date (which was 4/1/03). I would think that the answer to my boss' question above would be similar to the experience I had in 2003, but since I have never worked with SIMPLEs, I wanted to get some opinions. Any thoughts? Thanks for your help.

[saabraa]

My thoughts: The SIMPLE must be maintained thru 12/31/06.

New hires of the acquiring company are eligible for the SIMPLE. No current or new employees of the acquired entity (your original client) are eligible for the SIMPLE (presuming the 2 entities are still identifiable as such/have not been commingled).

The lack of verbiage on SIMPLES is refreshing, except when situations occur that don't fit neatly into the sparse guidance that exists. The code under 408(p) and Notice 98-4 are basically the authorities. Question and answer B-3 (2) of the Notice looks to be the most pertinent cite for your coverage situation. It appears fairly clear.

As far as the ability to terminate the SIMPLE, I too originally thought to treat it like a PSP. The authoritative language doesn't appear to definitively preclude termination short of 12/31. But IRS feels any SIMPLE plan year must continue thru 12/31. My best guess is they're leaning on language defining compensation to always be the whole year's compensation.

............................Just saw your prior post under SEP/SIMPLE category last month, where you clarified that the SIMPLE was properly ended in 2005. But you posted that a while ago, so:

I stand by my original response above, if deferrals have been made to the SIMPLE for 2006. (Except what exactly was the notice given to employees? SIMPLE or no SIMPLE?) .

If there's no problem with the notice, whatever it said, and no ctbns have been made to the SIMPLE for 2006, I agree with Gary Lesser, except I like dogs a bit better. Sorry.

[doombuggy]

That thread was about a different client, not the one mentioned above. We just found out about this one yesterday. I'll pass your thoughts along, however. Thanks!