In terminating a 401(k) pension plan there are restrictions in setting up a successor plan within a 12 month period. Is a Simple IRA plan a successor plan for this purpose. A SEP and ESOP are not. A Defined Contribution is.

I believe previous messages in this section have indicated that the answer is expected to be "No". I believe the IRS has spoken informally on the subject and said that SIMPLEs will be treated like SEP plans in this regard.

Pully,

No. For a more complete response, set your reader to see messages for a longer period of time; as this was discussed about two months ago.

Gary,
Do we have that information in writing somewhere? Although I believe everyone who says that is what they have heard informally from the IRS, I have yet to see anything definitive. I have had my clients hold off on distributing the 401(k) assets from the terminated plan until we have something in writing - I'm starting to get a little worried here.
Thanks!!!

The extension of the nonstatutory SEP rule regarding successor plans and terminating qualified 401(k) plans make sense from a policy standpoint; that is the purpose of IRC 410(k)(10)(A)(i) is to prevent participants from gaining premature access to their funds (which would occur in a SEP (or SARSEP)). In addition, the only contributions allowed under a simple ira are "qualified salary reduction arrangement" contributions; thus, the plan would fail to be a simple if 401(k) amounts were transferred into the successor SIMPLE IRA. IMNSLO, IRC 408(p)(2)(A)(iv) should give you sufficient comfort to "believe."

Anything definitive from the IRS stating that a SIMPLE IRA is not a successor plan under 1.401(k)-1(d)(3)? Anything informal in writing--Published Q&A's etc?

A SIMPLE IRA is NOT a successor plan. [Under the 1998 updates to the 401(k) Listing of Required Modifications (LRM), the IRS added SIMPLE IRAs to the list of plans that should not be considered a "replacement plan." [LRM for CODA Master or Prototype Plans, § XVI (Distribution Requirements)]

It ain't a reg or the statute, but the LRM is good enough for me. Thanks Gary Lesser

Hi all! I love Gary's answer from last August.

Do we have any thing more on this one (like a reg. or a statute)since then? I'm in the situation again and haven't looked at it since last year. I'm telling my client about the LRMs but would love to have something more authoritative to show as well.

Thanks for your input

I remain extremely comfortable that a SEP or SIMPLE is not a sucessor plan for 401(k) termination purposes.