Simple 401(k)-exclusive plan requirement

[AndyH]

Can a sponsor of a simple 401(k) plan terminate that plan and establish another plan (e.g. cross tested profit sharing plan), during the same year, or would that violate the exclusive plan requirement, resulting in disqualification of the simple 401(k) plan?

It seems clear that a simple K cannot be established where another plan existed and benefits accrued, but my question is the reverse.

[Bill Berke]

I think that because of the exclusive provision, you cannot switch during the year - either way. The law doesn't go into which plan replaces which, it merely requires no other plan exist. No comment on the wisdom of this provision.

[Richard Anderson]

Can you amend and restate the current simple 401(k)?

[AndyH]

Bill, I'm inclined to agree with you, but Richard poses a very interesting angle. I can't think of why not.

[Appleby]

You can amend and restate your current SIMPLE, but the fact still remains that for the year you maintain the SIMPLE, you may have no other plan/s unless the other plan is for the exclusive beenfit of employees under a collective bargaining agreement

[Bill Berke]

Richard, I like your idea, but amend to what and how? All the SIMPLE plans I've seen are using the IRS forms or a variation sponsored by a vendor. So, to me, you must restate, but how can you restate a SIMPLE (this is a form question)? And I still can't get past the exclusive rule.

[Appleby]

Amendment and restatemnts can be done for various reasons.

- changing the plan provisions- eligiblity requirement etc.

- changing the custodian -if you are moving to another custodian, then you would amend and restate to adopt their document

[Bill Berke]

Andy, sorry I wasn't clear. I have no problem amending a SIMPLE to move, change or whatever as long as we remain within the SIMPLE strucure. It is going to another plan type within the same year that troubles me.

[Guest JPCMPLS]

I recently was presented with another variation of this problem. An employer with a SIMPLE 401(k) terminated its plan in January and wants to establish a SIMPLE IRA to replace it. I could find no authority to do this. The Code appears to require that there be no qualified plan during the year to which contributions are made. Any ideas other than reinstating the 401(k)?

[Appleby]

The SIMPLE 401(k) model amendment has a section , at the very end , that allows the employer to revoke the amendmend. This revocation reinstates the regular 401(k) status.

There seems to be another issue at hand here.For an existing SIMPLE plan, the employer is required to provide a model notification to employees 60 days before the beginning of the next plan year. This means that the employer should have notified the employees before November 1,2000 , if he intended to maintain the SIMPLE 401(k) for 2001.

If that notification was provided, you cannot change the provisions in mid year. If the notification was not provided then the employer may not be able to maintain the SIMPLE for 2001, as the employer did not meet the notification requirement