Non-Calendar Year SIMPLE 401(k) Plan

[Michael B.]

Does anyone know if you can terminate a Non-calendar year SIMPLE 401(k) plan, I.e. plan year is 7/1 thru 6/30, and start a traditional 401(k) plan in the same calendar year? I know for SIMPLE IRAs they always operate on a calendar year basis but I am not sure about the SIMPLE 401(k). Thanks!

[Luke Bailey]

Michael B., I am spitballing this, but I will vote no, i.e., that even though the info on IRS website saying you cannot terminate mid-year is just for SIMPLE IRAs, they would apply same thinking to SIMPLE 401(k)'s. I think the problem is that it would not even be clear that a SIMPLE 401(k) plan that terminated mid-year would have to pass ADP and (if applicable) ACP, so the requirement for a full-year commitment to the contribution regimen is important to statutory purpose. Maybe someone else will be aware of guidance on this. It should be covered in the termination section of the plan document, I would think. Have you looked at that?

[Doc Ument]

Michael:  You do not have a SIMPLE plan unless the plan year is the "whole calendar year," so you don't have to worry about the SIMPLE rules for terminating the plan.  Even if the plan did use the whole calendar year as the plan year as required by Regulation 1.401(k)-4(g), that regulation specifically states that a SIMPLE plan can be terminated only as of December 31.  I suspect the document you are using requires the plan year to be the calendar year.  Here is the regulation:

"(g) Plan year. The plan year of a SIMPLE 401(k) plan must be the whole calendar year. Thus, in general, a SIMPLE 401(k) plan can be established only on January 1 and can be terminated only on December 31. However, in the case of an employer that did not previously maintain a SIMPLE 401(k) plan, the establishment date can be as late as October 1 (or later in the case of an employer that comes into existence after October 1 and establishes the SIMPLE 401(k) plan as soon as administratively feasible after the employer comes into existence). "