Let me tell you the story of someone I’ll call Bob the Business Owner.

Once upon a time Bob had a SIMPLE retirement plan which wasn’t quite working the way he wanted it to. He originally adopted the plan for his business because it was easy to establish, relatively low cost, and easy to administer.

But circumstances change, and now Bob wanted to:

  • Not have to cover practically all employees.
  • Make larger contributions.
  • Favor the owner.
  • Not have 100^% vesting of employer contributions.
  • Have the Roth option.
  • Allow for plan loans.
  • Be able to buy tax deductible tax insurance.
  • Have a larger choice of investment options.

The solution was quite simple. Replace the SIMPLE with a new 401(k)/profit sharing plan that could address all of Bob’s concerns.
The new plan could allow for SIMPLE account balances to be rolled over after meeting the required two-year period which begins on the date the individual first participated in the SIMPLE.

Why rollover SIMPLE account balances? It’s simple. The rollover may:

  • Be available for loans.
  • Provide greater creditor protection.
  • Be used to buy life insurance.
  • Provide greater tax savings on certain distributions.

But alas, Bob’s SIMPLE was much like the magazine subscription that automatically renewed each year unless the subscriber opted out prior to the anniversary date. Seems that Bob didn’t realize – or a knowledgeable adviser never told him – certain notice requirements had to be met in order to terminate the SIMPLE.
Bob wanted to have a 401(k)/profit sharing plan for 2013, but never did provide that required 60-day notice prior to the end of the prior year. Since Bob never met that November 1, 2012 due date, he continues to be the proud sponsor of a SIMPLE for 2013.

If you know someone like Bob who currently has a SIMPLE, but wants a 401(k)/profit sharing plan for 2014, then be that knowledgeable adviser who can help him avoid Bob’s mistake. You may even wind up with a client.

Jerry Kalish is an EBA Advisory Board member and President of National Benefit Services, Inc., a Chicago-based third party administrator. He is a Guest Lecturer at John Marshall School of Law LLM Program in Employee Benefits and serves on the Great Lakes IRS Advisory Council for Tax Exempt and Government Entity Plans. Jerry has been publishing The Retirement Plan Blog since 2006. He can be reached via email at jerry@nationalbenefit.com and followed on Twitter.



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