Employer terminates SIMPLE plan without giving employees notice

[Guest Nimrey]

Last year, my company burned through their 100+ employee grace period with the SIMPLE IRA. This year, around January 10th, (5 days before our first paycheck of the year), we were informed that the company could no longer offer the SIMPLE program. This sounds a lot like the employer is breaking several rules.

1. Operating a SIMPLE IRA with over 100+ employees (as of January 9th, of this year, employees knew nothing of the situation)

2. Terminating the SIMPLE plan without giving employees 60 days notice

3. Terminating the SIMPLE plan mid year

My employer claims to be searching for a 401k program, and hopes to have one available within the next few months. Several employees are considering leaving this employer and would like to know if anyone has thoughts / ideas as to what may be done to handle this situation from the employee's perspective.

[Jim Chad]

FWIW I think the employer handled this properly.

As soon as it was known that they were over the 100 employee limit, (after the grace period) they terminated the plan. When terminating because the employer has become ineligible, no prior notice is required. And yes they are required to terminate mid year. See Rev. Proc. 2013-12

[Bird]

It sounds to me like they had to choose the lesser of two evils: terminating the SIMPLE without sufficient notice, or operating a SIMPLE even though they had more than 100 employees in the prior year. I don't see any options here other than what they did.

(I just saw Jim Chad's response...I think he has provided the supporting documentation.)

[Guest Nimrey]

Thanks for the responses. I give them credit for being in a difficult position. The employer just received new investment capital and has a near complete change in upper management (who caught this oversight). I'm not quite familiar with the document you are referencing - do you happen to have a link?

[GMK]

http://www.irs.gov/pub/irs-drop/rp-13-12.pdf

it's kinda long. you can get commentary by googling: rev proc 2013-12