Can acquired employer with SIMPLE IRA continue to maintain the plan after acquisition?

[calexbraska]

We are a small employer with a SIMPLE IRA.  We are being acquired through a stock transaction by a larger company with a 401(k).  Can we continue to maintain the SIMPLE IRA as a frozen plan (no future funding) or are we required to terminate it by the end of the 2 year transition period?

If we terminate the SIMPLE IRA, what are the tax consequences?  

[Griswold]

Does the acquiring company have any sort of qualified plan (like a 401(k) plan)?

[calexbraska]

Yes, they have a 401(k).  I think I've figured this out.  The client was worried that terminating the plan would have negative tax consequences.  However, termination doesn't trigger distributions in the case of a SIMPLE IRA, so I think we're just going to terminate the SIMPLE IRA and let participant's have the choice of taking a distribution, doing a rollover, or just leaving their money in their accounts for now.

[Luke Bailey]

There is a grace period until the end of the next plan year when the target could continue to maintain the SIMPLE for its legacy employees. See IRC sec. 408(p)(10). I don't think you can terminate it before the end of the year. See https://www.irs.gov/retirement-plans/terminating-a-simple-ira-plan.

[calexbraska]

Thanks Luke.  Duly noted.

[Luke Bailey]

Good luck, calexbraska.