Consequences of blowing up a SIMPLE 401(k)

Submitted by John Peterson on Thu, 2013-03-21 20:29

Not an IRA question but hoping someone on this forum has an answer

If an employer decides to stop a SIMPLE IRA mid-year and adopt a 401(k) the consequences are manageable

But what about a mid-year amendment of a SIMPLE 401(k) to revert to traditional 401k rules?

If the consequences are “only” having to deal with ADP/ACP testing and top heavy they’re also very manageable, but if there’s a possibility of plan disqualification we’re sunk.

Any thoughts?



Submitted by Alan - IRA critic on Thu, 2013-03-21 21:06

I don’t think this can be done mid year. See the following from Notice 97-2:

  • .04 The plan year of a plan containing
  • the 401(k) SIMPLE provisions must
  • be the calendar year. An employer maintaining
  • a 401(k) plan on a fiscal year
  • basis must convert the plan to a calendar
  • year in order to adopt the 401(k)
  • SIMPLE provisions.

The tax code reference is 401(k)(11) (A and C).

Submitted by John Peterson on Thu, 2013-03-21 21:44

We’re going to amend the plan to revoke/eliminate the SIMPLE 401(k) provisions effective April 1, 2013.No question that we “can” amend the plan, and we know we lose the exemption from testing and top heavy for all of 2013 but just don’t see how it violates a plan qualification requirement.Thanks  

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