restating 403(b) plan document

Terminating a SIMPLE IRA or SIMPLE 401(k) Plan

How do you terminate your SIMPLE IRA or SIMPLE 401(k) plan?

SIMPLE IRA and SIMPLE 401(k) plans must be maintained for a whole calendar year (other than the first year you set up your plan), funding all contributions promised in the employee notice.

November 1 Deadline: This is the date in each plan year by which the plan sponsor must decide and notify all eligible participants that the plan will terminate at the end of that year.

Step 1: You must give employees a 60-day notice of discontinuation before the end of the current plan year, so to terminate the plan at the end of 2017 this notice must be provided by November 1, 2017. If you do not give this notice, then you must sponsor the Simple IRA or SIMPLE 401(k) plan in 2018 and cannot establish another qualified plan such as a traditional 401(k) plan in 2018.

Example: ABC Company decided on November 18, 2016, to terminate its SIMPLE IRA plan as soon as possible (note that this date is beyond the 60-day notice required for 2016 termination). The earliest possible effective date for the termination is December 31, 2017. Therefore, ABC must notify its employees by November 1, 2017, that it will not sponsor a SIMPLE IRA plan for 2018.

Step 2: Notify your SIMPLE IRA or SIMPLE 401(k) plan’s financial institution and payroll provider that you want to terminate your contributions because you will not be making SIMPLE IRA or SIMPLE 401(k) contributions for 2018 (the next calendar year).

Step 3: Make sure you keep records of your actions. It isn’t necessary to notify the IRS.

Can you terminate your SIMPLE IRA or SIMPLE 401(k) plan in the middle of the year?

No, you cannot end your plan in the middle of a calendar year. Once started, you must continue your SIMPLE IRA or SIMPLE 401(k) plan for the entire calendar year, funding all contributions promised in the employee notice.

Should you decide your SIMPLE IRA or SIMPLE 401(k) plan no longer suits your needs, call QBI so that we can assist you through this process -- or consult with your financial institution to determine if another type of retirement plan might be a better match for your company.

What if you decide to continue your SIMPLE IRA or SIMPLE 401(k) plan for 2018?

Regulations require the annual SIMPLE IRA or SIMPLE 401(k) plan notice to eligible employees by November 1, 2017 for the 2018 plan year. The notice must include the participants’ salary reduction rights as well as whether the employer required contributions will be matching or non-elective contributions. The participant’s salary deferral election period is generally the 60-day period immediately preceding January 1 of the coming calendar year (making the election period November 2 to December 31, 2017).