401(k) SIMPLE WHERE PREVIOUS PLAN EXISTED

[Guest JB2]

A company has a frozen PS and MP. Plans are terminated and distributions are processed to all participants. The month following the distributions, the company starts a 401(k) SIMPLE.

I believe the company should have transferred the balances to the 401(k) SIMPLE as this is a successor plan. Is this correct? What actions can the company take to try and correct any plan violations?

[Chester]

The Simple 401(k) is a new plan, and the participants' account balances can not be directly transferred over to the new plan without the participants' consent. Since the previous plans were terminated, the participants must be given the option of taking the money in cash or rolling it over to the new plan.

[Larry M]

Presumably the plans which terminated were in the year prior to the year the SIMPLE plan was made effective.

[As I understand the law, a SIMPLE plan can not be established in any year during which the employer maintained a qualified plan in which an individual accrued a benefit. Do you accrue a benefit in a frozen d.c. plan?]

[Guest JB2]

The termination happened in the same year that SIMPLE was started.

However, if I understand this correctly, the frozen plan would not disqualify the company from starting new 401 SIMPLE.

What about the distributions paid out. Shouldn't the correct action have been to roll to new plan because it was established less than 12 months (actually next month) after termination of prior plans?

[LCARUSI]

If you terminate a 401(k) Plan and distribute account balances, you cannot have a successor Plan for 12 months.

However, that rule does not apply to MP or PS Plans (assuming the PS plan has no 401(k) feature)