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SIMPLE IRA, company dissolved, new company 401k?


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Employer has a SIMPLE IRA plan for him and employees. Company ceases to exist in 2015. New Company/new name/new EIN with same owner and employees. Can this employer set up a 401(k) under the "new" Company?

I don't work with SIMPLES but this sounds to me like the owner needs to wait until 01/01/2016 to start the 401(k).

Thank you in advance.

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correct, "sole plan of the employer" for the calendar year must be the SIMPLE. Employer is defined based on controlled group rules. So this is the same employer. But the original SIMPLE should still be in tact so keep using it. Your "new" employer is eligbile for that plan because the SIMPLE document incorporates that controlled group definition of employer. You're actually forbidden from even having 2 SIMPLE's in the plan year, so don't set up a new SIMPLE.

Austin Powers, CPA, QPA, ERPA

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I'm not so certain of that. If both entities are corporations, since they don't exist on the same day, there may not be a CG. On the other hand, if it is a mere change in form, for example a sole prop or partnership that incorporates, then I think you do have a CG.

This one could be tricky, and I'd recommend ERISA counsel. The 415 regulations (1.415(f)-1©(2)) might also consider this a predecessor employer situation.

So I think there is the potential for some "gray" in this situation, depending upon facts and circumstances.

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You're both right! When performing a controlled group analysis, the companies must exist at the same time. I'm with Austin3515, but for different terminology. I don't believe it is a different company, but merely a continuation of the same company under a different entity type. For that reason, it appears to be a same employer.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Hi Austin - in the absence of guidance saying otherwise, how could you have identical stock ownership in EACH corporation, if those corporations don't exist at the same point in time? I was thinking specifically about 1563 - how can 5 or fewer/80% test be met with regards to corporation A and B if corporation A doesn't exist? What day are you testing? Suppose instead of being formed next day, new corporation B isn't formed until 2 weeks later, but in the same calendar/plan year - would you assert this is a CG as well? Is there a statutory/regulatory "time limit" that you can point to that clarifies this?

There was some stuff in the proposed 414(o) regulations addressing this, but that portion of the proposed reg was withdrawn.

I'm just saying I don't think this issue is necessarily a slam dunk either way, and I'd be careful opining either that it is or is not a CG. In fact, I might give "input" but I'd make darn sure I wasn't the one making this decision, cause the ramifications for being wrong in either direction could be unsavory.

P.S. - perhaps as support for the fact that this is merely a reorganization, and therefore a CG, you could use 368(a)(1)(F)? I'd still defer to counsel!

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Why isn't "within the plan year" a reasonable definition of the applicable time frame?

Here is an example of the potential implications of not recognizing a controlled group. These employees have 5 years of service with old co. Old Co (a bowling alley) closes down, and now New Co (a pizza restaurant) is opened 3 months later and these 5 are hired. Are they all ineligible for the plan because the law does not require their service to be recognized? Are they all zero percent vested in any employer contributions? Are the old HCE's from old co now considered NHCE's?

It would seem odd if the answers were all yes since they all work for the same guy.

Austin Powers, CPA, QPA, ERPA

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Didn't seem very enlightening. I keep coming back to, "boy, if you're wrong..." I would be extremely uncomfortable without something in black and white. I sure would love to see what pages 183-187 of Derrin's who's the employer book has to say... But the poster did not tell us, nor did Derrin. Until then, I advise extreme caution!

Austin Powers, CPA, QPA, ERPA

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Key line from the PLR:

"The operation of section 414(b), © and (m) and the regulations thereunder necessarily require that controlled group members exist concurrently."

I don't know why but I am still leery of this. I guess it is because it is "just" a PLR and the example is so vastly different than the one presented above. I guess the example above makes me wonder if this really is the same "concern" if not the same legal entity even though the two businesses might be in different industries.

Austin Powers, CPA, QPA, ERPA

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Key line from the PLR:

"The operation of section 414(b), © and (m) and the regulations thereunder necessarily require that controlled group members exist concurrently."

I don't know why but I am still leery of this. I guess it is because it is "just" a PLR and the example is so vastly different than the one presented above. I guess the example above makes me wonder if this really is the same "concern" if not the same legal entity even though the two businesses might be in different industries.

This is why I contend that it is not a controlled group issue. There is precedent that suggests that in order for a controlled group to exist, the companies must exist at the same time. The interpretation is that when a company doesn't exist, then ownership is zero. However, when you have a situation where a business operation merely changes its name to operate under a new identity, then that is a continuation of the same entity. Terminating a business and starting another one goes beyond merely changing the entity type or business's name.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Austin - I found the second edition of Derrin's book in our old archives. These page #s don't match up to 183-187 but see attached.

Also - I spoke with the broker who originally called about this and he told me that the companies are identical. It was basically just a name/entity type/ein change.

DOC063015-002.pdf

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