Acquisition of Company with SIMPLE IRA

[Scott]

A parent company with several subsidiaries, all of which participate under the parent's 401(k) plan, is about to acquire another company (the "target") which maintains a SIMPLE IRA. The acquisition will take place before the end of 1999. The parent would like the target's employees to participate in the parent's 401(k) plan after the acquisition.

What would be the best way to accomplish this, in light of the prohibition against maintaining a qualified plan and a SIMPLE IRA? There are 3 options as I see it, but I'm not sure whether each can be done or what the ramifications of each are.

First, the parent could require the target to terminate its SIMPLE IRA prior to the acquisition. The target's employees would begin participation in the parent's 401(k) immediately. Note: this has been the parent's practice in past acquisitions of companies with 401(k) plans to avoid the "successor plan" rules under 401(k). It seems to me that this might avoid the possibility of an "employer" maintaining a qualified plan and a SIMPLE IRA at the same time.

Second, the SIMPLE IRA could be continued until the end of 1999, with the target employees continuing their contributions, at which time the SIMPLE IRA would be terminated and the target employees would begin participation under the parent's 401(k) plan effective 1/1/2000.

Third, the parent could terminate the SIMPLE IRA after the acquisition at some time in 1999, at which time the target employees would begin participation in the parent's 401(k) plan.

Any thoughts or suggestions?

[Kathy]

I'm not even sure if this is relevant but is this a stock transaction or an asset transaction? If it's an asset acquisition, then I would think (have no cite though) that the company could "terminate" the SIMPLE (Old SIMPLEs never die, they just become complex???) on the day it no longer exists and that the employees could participate in their new employer's plan 401(k). Stock transaction though makes it more complicated, I think.

[This message has been edited by Kathy (edited 09-25-1999).]

[Scott]

It's a stock transaction.