Your company has a 401(k) plan. You just acquired another company, and it has SIMPLE IRA. You have learned that a company that offers a SIMPLE IRA cannot also sponsor another plan. What do you do?
A recent blog post from DWC – The 401(k) Experts offers some ideas.
“Mixing the worlds of 401(k) plans and SIMPLE IRAs can add a degree of difficulty to a merger and, at the very least, throw a few new questions into the mix,” the authors say, but note that there are exceptions to the “exclusive plan” requirement and that it is possible for there to be a transition. Specifically, there is a post-acquisition grace period that allows a 401(k) plan and SIMPLE IRA to coexist through the last day of the plan year following the plan year in which the acquisition occurred.
DWC cautions that it can be a “headache” to contend with two plans, and that the SIMPLE IRA rollover rules themselves may be one reason an acquiring company may want to cover all employees before regulations require it. “Participants are not able to roll their funds from a SIMPLE IRA into a 401(k) plan until they’ve held their account for two years,” they write, adding that “This means that the sooner new participants stop accruing benefits under the SIMPLE IRA, the sooner all participants will have the opportunity to roll their funds into a 401(k) account.”
And, DWC adds, not addressing the matter by the end of the grace period will result in having to turn to the IRS Voluntary Correction Program (VCP).
Editor’s Note: This is the first installment of an occasional feature on ASPPA Net based on content from DWC – The 401(k) Experts. Read the full post here.
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