401(k) Plan Term- VFCP corrections

[Guest MTransue]

I have a client with a 401(k) Plan, that wants to terminate the plan at the end of 2011, to start a SIMPLE plan in 2012. The client has had late deferral deposits from 2008 thru 2011, that we will be self correcting and filing a VFCP application. There is 1 participant who has an outstanding loan, which it not scheduled to be paid back until 2015.

If we wait to prepare the termination amendments until after we receive a Determination Letter from the VFCP application, and the participant loan repayments would continue, would the employer be able to start a SIMPLE plan in 2012? All other deferral contributions would be stopped at the end of 2011.

Is this permissible with the understanding that when we prepare the amendment to terminate the plan, the loan balance would either be due in full or taxable to the participant?

Thanks for your help!

[ETA Consulting LLC]

You may still start the SIMPLE. The exclusive plan rule pertains to "contributions or forfeiture allocations"; not loan repayments. Just think of it, you don't have to test loan repayments under 410(b).

Good Luck!