Cancelling a 401k

[Guest vinson7]

If you want to cancel a 401k what are the procedures if any you would have to file with the DOL. Company doesn't provide a match and doesn't want to pay for it anymore. Can you abolish it in the middle of the year, or do you have to wait until the end of the year? Also, if the company wants to establish a SIMPLE instead, are there any time restraints they have to adhere by once they cancel the 401k?

Thanks in advance...

[K2retire]

In general an amendment terminating the plan and bringing it up to date for recent law changes is required. All assets must be distributed and a final 5500 filed. If the plan is subject to compliance testing, that must be completed. You must also decide whether or not to file a notice of the termination with the IRS. That is a costly and time consuming affair.

You should be talking to the professionals who helped you establish and administer the plan. They are in a better position to advise you about the needs of your situation.

[Tom Poje]

in addition,according to the regs, a SIMPLE plan must be the only plan in a calendar year in which participants accrue benefits.

[Guest Sieve]

As to your question about the timing of establishment of a SIMPLE after termination of the 401(k) plan . . . If the 401(k) plan terminates and the same employer establishes or maintains a SIMPLE 401(k) during the period from the date of plan termination until 12 months after the final distribution of assets from the 401(k) plan, then the termination of the 401(k) plan was not a distributable event, and the 401(k) plan would be disqualified as a consequence of making distributions to participants. So, a new SIMPLE 401(k) couldn't be established until at least 12 months after the final distributions from the terminated plan. However, maintaining or establishing a SIMPLE IRA during that period of time following termination of the 401(k) plan is OK. (Treas. Reg. Section 1.401(k)-1(d)(4)(i).)

With that in mind . . . If there are no contributions of any kind into the 401(k) plan during the year--as unlikely as that might be--then a SIMPLE 401(k) or SIMPLE IRA can be established for those same employees during the same year (even if there are forfeitures allocated in the PS portion of the 401(k) plan during the year). (IRC Sections 401(k)(11)© & Treas. Reg. Section 1.401(k)-4©; IRC Section 408(p)(2)(D).)

Note, too, that there may be a short plan year as a result of a mid-year 401(k) plan termination, which, among other things, will limit the maximum compensation that can be considered for any participant (on a pro rata basis), and therefore there may be an adverse impact on the 401(k) plan's final ADP/ACP tests.