Company with SIMPLE 401k merges with Co. with 401k

[401king]

Company A has merged with company B.

Company A has a SIMPLE 401k, company B has a traditional 401k.

There is only one active participant in the SIMPLE 401k sponsored by company A (more than one employee, though).

The administrator of company B's 401k plan is planning on terminating the SIMPLE in July because of the mindset that the company cannot sponsor a 401k and a SIMPLE 401k. The administrator continued to say that the sole participant in the SIMPLE will not be allowed to defer into the traditional 401k plan because "it would then be a continuation of a previously terminated plan." The participant wouldn't enter the Trad. 401k until Jan 2010.

Two of these statements don't make sense to me (and it's likely I'm wrong on both):

1. My understanding is that a company can sponsor a Trad. & a SIMPLE 401k if the circumstances are due to a merger or acquisition.

2. The idea that this participant wouldn't be covered until January 1, 2010 seems to me like they are removing a benefit that was acquired while employed with the company.

Any thoughts on this would be helpful, thanks!

[Laura Harrington]

IRC 408(p)(10) provides transitional relief in this situation. The transition period begins on the date of the business transaction and runs through the last day of the second calendar year following the calendar year in which the transition occurred.

In order to be eligible for the transitional relief there must be no significant changes in coverage under the SIMPLE plan and the exclusive plan rule must be satisfied except for the situation caused by the business transaction.

Laura

[401king]

IRC 408(p)(10) provides transitional relief in this situation. The transition period begins on the date of the business transaction and runs through the last day of the second calendar year following the calendar year in which the transition occurred.

In order to be eligible for the transitional relief there must be no significant changes in coverage under the SIMPLE plan and the exclusive plan rule must be satisfied except for the situation caused by the business transaction.

Laura

Thank you, Laura. That is exactly what I need to correct the other admin's opinion on the matter.