Plan Sponsor wants to freeze the 401(k) and start a SIMPLE-IRA in 2003. (Can't figure out why they just don't terminate the 401(k)) Is this permissable? I don't see why not since no one would benefit under the 401(k), but just wanted to check.

Its ok as long as the employer does not make any contributions to the 401(k) plan or allocate any forfeitures in 2003. Q- how is the er going to make salary reduction contributions to the 401(k) plan after year end. You should check this out.

I've never really actually seen a frozen 401(k), but would there be any further deferrals? The intent is totally freeze all contributions; if participants are eligible to defer, then they couldn't do a SIMPLE-IRA because they would be benefitting under a qualified plan.

Am I missing something? Again I never have seen a frozen 401(k) and don't really see how it is a good option.