Partnership Dissolved - Has SIMPLE IRA

[MarZDoates]

Partnership sponsors a SIMPLE IRA for two partners and two employees. The partnership is being dissolved...one partner and one employee is leaving effective March 1, 2010....What needs to be done with the SIMPLE IRA that was sponsored by the "former" partnership. The remaining partner becomes a sole proprietor and wants to continue the SIMPLE for himself and the remaining employee.

Can they terminate one SIMPLE and start a new one with a new plan document naming the sole prop as the sponsor?

[Gary Lesser]

MarZDoates, interesting question (pretty dog). Some addiional information may be helpful (possibly useful, but see #8)--

1. Are the intentions of the other partner (and his/her employee) regarding retirement plans known?

2. Will the old entity and the new entities exist at the same time (on any day)? [see common control under IRC Secs. 414(b), 1563(a)]

3. What is the equity percentages of the partners? Are the partners related (e.g., H & W)?

4. Will plan structure remain the same (i.e., DFI or nonDFI).

5. Are the IRS model forms being used for the SIMPLE and SIMPLE-IRAs?

6. Is it the partnerships intention to match (or make nonelective) contributions under the plan for as long as it does exist and before it is dissolved (under state law)? Not that there is much choice in this.

7. Is there anything to suggest a formal predecessor-successor relationship under state law?

8. Would there be any objection to one of the new entities adopting the existing partnership plan (as an adopting employer), and then having the patnership withdraw, plan name changed, and the trustee/custodian notified (and of the date of the last contribution by the partnership)? [Mostly by Resolutions of the Partnership and of the Sole Proprietor.] Sole proprietor also affixes signature to SIMPLE plan document. There may some advantage to doing this (e.g., 2-year rule). This approach also eliminates the possibiliy of there being more than one SIMPLE for the "same" employer and counts all service (see IRC Sec. 414(a)). The new employer should probably issue new annual notices and revised plan description information to be safe.

I am not aware of any formsl guidance on this issue (other than the existing plan having to be funded). Hope this helps.