Suppose an employer that maintains a 401(k) plan in 2004 adopts a resolution to terminte the plan effective 12/31/04. There will be no deferrals, match or forfeiture allocations in 2005. Earnings will be allocated. Assets will be distributed during 2005.

Can the same employer establish a SIMPLE IRA in 2005? If so, what is the earliest day that it can be established? (i.e. 60 days after notice is given to employees?)

The way I am reading the regs, it appears that as long as there are no allocations of contributions or forfeitures (in 2005), we can go ahead and set up the SIMPLE. I would like confirmation of this, though.

Thank you.

You are correct. If there are no allocations to the 401(k) plans then the SIMPLE plan will be allowable for 2005.

As for the earliest date that you can use, it would be January 1st assuming you get the notice out timely.

There is only one item that I am not sure of - successor plan rule.
The new proposed 401(k) regulations add the SIMPLE IRA to the list of DC plans that can be established without violating the successor plan rule for a terminating 401(k) plan (establising a new plan within 12 months). However, we cannot rely on these regulations yet. Does anyone see a problem with this issue currently??

Bob K, For this purpose, do "allocations" include reallocated forfeitures?

I don’t. We often rely on proposed regs when final regs are not available. Most popular example is the 1987 RMD regs.

From the IRM .." When no temporary or final regulations have been issued, examiners may use a proposed regulation to support a position. Indicate that the proposed regulation has no authoritative weight, but is the best interpretation of the Code section available"

Lori, from IRS notice 98-4…” forfeitures are disregarded except to the extent forfeitures replace otherwise required contributions”

Lori:

I may be missing something obvious, but - what forfeitures? The plan terminates and full vesting kicks in. What am I missing?