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Simple IRA and Safe Harbor 401(k)


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I have a client that currently operates a Simple IRA plan. he would like to terminate or freeze this plan and start up a Safe Harbor or Traditional 401(k) Plan.

Since he missed the November deadline to notify his employees, what are his options?

Can he start up a Safe Harbor (his target date is Feb 1, 2015)?

Does he have to start up a traditional 401k until Jan 1, 2016?

Is it possible to operate both plans at the same time throughout 2015?

there is also an issue that 3 of the 12 employees are HCE's and the non-discrim test might fail if not a safe harbor.

Please help advise... thanks

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I seem to recall discussions on these boards that it may be OK to issue the SH notice less than 30 days before the start of the plan year, but I can't find the posting and I don't know that it's true.

If it is true, your client would need to document that the employees were given adequate notice for them to make their decisions about deferrals. The 30-day requirement is meant to allow employees at least 30 days to do their analysis and make up their minds. It may be that the client's 12 employees would not need that much time, but that's a judgement call based on the facts and circumstances. And it's not as if the rest of the month is free of distractions.

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I don't think it is a big deal to miss the November (really Dec 1) "deadline" - that is just a safe harbor for giving the notice; see below.

Definitely can't operate both in the same year.

(3) Timing requirement—
(i) General rule. The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relevant facts and circumstances.
(ii) Deemed satisfaction of timing requirement. The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established plan that provides for elective contributions, or would apply in the case of the first plan year in which an employee becomes eligible under an existing plan that provides for elective contributions. If it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on the date the employee becomes eligible.

Ed Snyder

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Guest Jmar401k

I've bumped into this before... unfortunately, the deadline for terminating the SIMPLE IRA and establishing a new 401(k), Safe Harbor or Traditional is 11/2. Past that date, the sponsor doesnt have enough time to provide 60 days notice of terminating the SIMPLE. Now that 11/2/2014 has passed, the earliers that a NEW 401(k), Safe Harbor or Traditoinal, can be established is 1/1/2016... and notice NEEDS to be provided to participants no later than 11/2/2015. Theres an example on the IRS.gov website to back this up

How do I terminate my SIMPLE IRA plan?

Step 1: Notify your employees within a reasonable time before November 2 that you’ll discontinue the SIMPLE IRA plan effective the following January 1.

Step 2: Notify your SIMPLE IRA plan’s financial institution and payroll provider that you won’t be making SIMPLE IRA contributions for the next calendar year and that you want to terminate your contributions.

Step 3: You should keep records of your actions, but you don’t need to notify the IRS that you have terminated the SIMPLE IRA plan.

Example: Acme Company decided on November 18, 2014, to terminate its SIMPLE IRA plan as soon as possible. The earliest effective date for the termination is January 1, 2016. Acme must notify its employees before November 2, 2015, that it won’t sponsor a SIMPLE IRA plan for 2016.

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If an employer makes a "mistake" and establishes a new qualified plan, that negates the SIMPLE, disallowing any contibutions made to that SIMPLE for the years in which both plans are maintained. The Q&A above does not mention this, but if the employer adopts a regular qualified plan, it should say that no contributions should be made to the SIMPLE and any contributions already made to the SIMPLE during the same year will have some corrective steps that need to be applied.

See item 3 on this link:http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide

and see this link: http://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Plan-Fix-It-Guide-Your-business-sponsors-another-qualified-plan

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The 60 day notice to terminate is definitely not in the Code. I'm not sure if it came from regs or if it is just something that they put in a publication, but as noted above, the fix for stating a new plan is just not to allow contributions to the SIMPLE. The notice timing doesn't worry me in the least.

Ed Snyder

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