SEP Amendment Mid-Year?

[Guest Steve Benjamin]

Company has a SIMPLE IRA-DFI using IRS document 5305. They now (i.e. asap) want to allow employees to invest anywhere. So naturally, they should “amend” their SIMPLE to a SIMPLE IRA-Non-DFI using the other IRS document (5304).

But the IRA Answer Book (13th Ed., Q12-24) says that an employer can only amend their SIMPLE IRA at the start of a calendar year. So…

If an employer keeps all plan provisions identical (e.g. eligibility, etc. ), can the employer move from a SIMPLE-DFI to a SIMPLE-Non-DFI document mid-year?

Or would this be considered a plan amendment and so must wait until January 1?

Thanks for the help.

Steve

[jevd]

Company has a SIMPLE IRA-DFI using IRS document 5305. They now (i.e. asap) want to allow employees to invest anywhere. So naturally, they should “amend” their SIMPLE to a SIMPLE IRA-Non-DFI using the other IRS document (5304).

But the IRA Answer Book (13th Ed., Q12-24) says that an employer can only amend their SIMPLE IRA at the start of a calendar year. So…

If an employer keeps all plan provisions identical (e.g. eligibility, etc. ), can the employer move from a SIMPLE-DFI to a SIMPLE-Non-DFI document mid-year?

Or would this be considered a plan amendment and so must wait until January 1?

Thanks for the help.

Steve

This would require a new document so IMHO this is an amendment that must wait until January. Nothing prevents the clients from transferring all or a portion of their SIMPLE funds to another custodian/trustee in the interim however some fees may apply.

[Guest Steve Benjamin]

Let's also assume:

- the 60-day notice was timely provided before the start of the year

- the notice did not mention the DFI requirement and

- if moved to non-DFI, all participants would receive a new document

Thanks.

Steve

[jevd]

Let's also assume:

- the 60-day notice was timely provided before the start of the year

- the notice did not mention the DFI requirement and

- if moved to non-DFI, all participants would receive a new document

Thanks.

Steve

How were the employee SIMPLE IRA accounts set up?

Were they established at the DFI or elsewhere?

Where have deposits been made if not to an account at the DFI?

Who set up the accounts at the DFI?

[Appleby]

Adding to some of the comments above…

If the amendment occurs mid-year, there could be an issue with satisfying the notice requirements. According to the SIMPLE IRA LRM, the amendment must be effective as of the first day of the year. The LRM also says that the amendment must conform to the content of the plan notice for the calendar year. If the employer had used the 5304, the notice would have addressed the ‘you can choose whichever financial institution with which you want your account to be established/maintained’ disclosure requirement. Since the employer used the 5305-subject to DFI rules, such a notification would not have been provided. This would mean that if the amendment is permitted, an Amendment to the Model Notification would need to be provided to participants. The question then becomes, if an employer prevented an employee from choosing his/her financial institution on January 1, but the employer is now saying” hey, you know what, you could have chosen your financial institution after-all” . Since this cannot be made retroactive , that could create an issue .

Another possible issue is the fees and penalties that could apply to transferring the accounts. If limitations were placed on the investments from which the transfer could be made without cost or penalty and/or the period during transfers could be made without cost or penalty, these restrictions would need to be lifted or the fees/penalties waived.

It's an interesting issue...

Denise