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Case of the Week: When SIMPLE Plans Are Not So Simple (Part 1)

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Texas is representative of a common inquiry related to savings incentive match plans for employees (SIMPLE) IRA plans. The advisor asked:

“A CPA that I network with had a small business client that maintained a SIMPLE IRA plan. The CPA’s client purchased another business in 2018 via a stock acquisition. The acquired business brought with it a 401(k) plan. The CPA asked, ‘Can my business client continue to offer both the SIMPLE IRA and 401(k) plans at the same time?’”

Highlights of the Discussion

Among the employer eligibility rules for maintaining a SIMPLE IRA plan is the “exclusive plan rule.” In general, a single employer may not maintain a SIMPLE IRA plan in the same calendar year it maintains any other type of qualified retirement plan.[1. Another plan would include a defined benefit, defined contribution, 401(k), 403(a) annuity, 403(b), a governmental plan other than a 457(b) plan, or a SEP plan.]

In the situation noted above, the merger of the two businesses results in one employer with two plans (a 401(k) and SIMPLE IRA plan) during the same calendar year. Fortunately, a temporary exception to the exclusive plan rule is available. The temporary exception allows the merged businesses to maintain the SIMPLE IRA plan during the year of merger or acquisition, and the following year as long as only the original participants continue in the SIMPLE IRA plan (see Q&A B-3(2) of IRS Notice 98-2).

Let’s use this situation as an example. The ownership change occurred in 2018. The SIMPLE IRA plan can be maintained in 2018 and through 2019 without running afoul of the exclusive plan rule. Before 2020, however, either the SIMPLE IRA plan or the 401(k) must be terminated.


Acquisitions and mergers involving multiple retirement plans can complicate SIMPLE IRA plan operations due to the exclusive plan rule. It is important to be aware of the transition rule in these scenarios.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2019, Retirement Learning Center, LLC. Used with permission.