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SIMPLE IRA Plan Annual Notices

What are the annual notice requirements for a SIMPLE IRA plan?

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans.  We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with an advisor in New Hampshire is representative  of a common inquiry involving SIMPLE IRA plans.

Highlights of Discussion

By November 1 of each year, an employer that sponsors a SIMPLE IRA plan must provide eligible employees with two important notices:

  1. the Summary Description; and
  2. the Annual Deferral Notice (IRS Notice 98-4).

The Summary Description must include the following information:

  1. The name and address of the employer and the trustee or custodian;
  2. The requirements for eligibility for participation;
  3. The benefits provided with respect to the arrangement;
  4. The time and method of making employee elections with respect to the arrangement; and
  5. The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.

If a plan sponsor established the SIMPLE IRA plan using either IRS Form 5305-SIMPLE or 5304-SIMPLE , he or she can fulfill the Summary Description requirement by providing eligible employees completed copies of pages one and two of those forms. If a plan sponsor used a prototype SIMPLE IRA plan document, then the information is obtained from the forms vendor.

The Annual Deferral Notice must include the following information:

  1. The employee’s opportunity to make or change a salary deferral choice under the SIMPLE IRA plan;
  2. The employee’s ability to select a financial institution that will serve as trustee of the employee’s SIMPLE IRA, if applicable;
  3. The plan sponsor’s decision to make either matching contributions or nonelective contributions and the amount; and
  4. Written notice that an employee can transfer his or her balance without cost or penalty if he or she is using a designated financial institution.

IRS Forms 5305-SIMPLE and 5304-SIMPLE have model Annual Deferral Notices that a plan sponsor can use to satisfy this requirement.

If the employer fails to provide one or more of the required notices he or she is liable for a penalty of $50 per day until the notices are provided.

Notification failures of this sort may be eligible for correction under the IRS’ Employee Plans Compliance Resolution System (EPCRS).

Conclusion

Sponsors of SIMPLE IRA plans must ensure compliance with the annual notification requirements for eligible employees or, potentially, face IRS penalties.

 

© Copyright 2017 Retirement Learning Center, all rights reserved
IRA
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Setting Up a SIMPLE IRA Plan

“My client and I want to know if there is a deadline for establishing a SIMPLE IRA plan for 2017?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans.  We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with an advisor in New Mexico is representative of a common inquiry involving savings incentive match plans for employees (SIMPLE) IRA plans.

Highlights of discussion

  • Yes, there is. The general deadline for establishing a SIMPLE IRA plan for a given year is October 1. For example, the deadline for an eligible business owner to set up a SIMPLE IRA plan for 2017 is October 1, 2017.
  • There are two exceptions to the general rule. First, if the business comes into existence after October 1 of the year the SIMPLE IRA plan is desired, then the new business owner may still set up a SIMPLE IRA plan for the year, provided he or she does so as soon as administratively feasible after the start of the new business. Second, if a business has previously maintained a SIMPLE IRA plan, then it may only set up a new SIMPLE IRA plan effective on January 1 of the following year (e.g., set up the plan in 2017 with an effective date of January 1, 2018).
  • Businesses that are eligible to establish SIMPLE IRA plans are those that
  1. Do not maintain any other qualified retirement plans; and
  2. Have 100 or fewer employees who received at least $5,000 in compensation from the employer for the preceding year [IRC §408(p)(2)(c)(i) IRC §408(p)(2)(c)(i) and IRS Notice 98-4, Q&A B4 ].
  • The basic steps for establishing a SIMPLE IRA plan are
  1. Execute a written plan document (either a government Form 5304-SIMPLE or Form 5305-SIMPLE, or a prototype plan document from a mutual fund company, insurance company, bank or other qualified institution);
  2. Provide notice to employees; and
  3. Ensure each participant sets up a SIMPLE IRA to receive contributions.
  • Employees who are eligible to participate in a SIMPLE IRA plan are those who received at least $5,000 in compensation from the employer during any two preceding years, and are reasonably expected to receive at least $5,000 in compensation during the current year.Business owners who are interested in establishing SIMPLE IRA plans must be aware of the deadline to do so, and the additional steps involved to ensure a successful set up.

Conclusion

Business owners who are interested in establishing SIMPLE IRA plans must be aware of the deadline to do so, and the additional steps involved to ensure a successful and compliant set up.

© Copyright 2017 Retirement Learning Center, all rights reserved
retirement pension
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Participant in SIMPLE IRA and 401(k) with Separate Employers

Deferral limit involving SIMPLE IRA and 401(k) plans

“I have a client—over age 50—who participates in a savings incentive match plan for employees (SIMPLE) IRA plan with one of his employers and a 401(k) plan with a separate employer. How much can my client defer into the SIMPLE IRA plan and 401(k) plan?”

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

Highlights of Discussion

  • To determine the answer to your question your client must look at his overall Internal Revenue Code Section (IRC §) 402(g) employee salary deferral limit and the rule that limits employee salary deferrals to the SIMPLE IRA plan under IRC § 408(p)(2)(A)(ii).
  • For each tax year IRC §402(g) limits an individual’s overall employee salary deferrals combined across all eligible plans (e.g., deferrals made to a SIMPLE IRA plan and 401(k) plan) to a set amount. For 2016 and 2017, a person’s 402(g) limit is 100 percent of compensation up to a maximum of $18,000 if he or she is under age 50, and is $24,000 if he or she is age 50 or greater and making catch-up contributions.
  • The maximum amount that a SIMPLE IRA plan participant may defer into the SIMPLE IRA plan is limited to 100 percent of compensation up to a maximum of $12,500 for 2016 and 2017 or, if he or she is age 50 and over, to $15,500 (which includes catch-up contributions of $3,000).
  • Therefore, your client, being over age 50, could choose to make employee salary deferral contributions to the SIMPLE IRA plan in any amount as long as he does not exceed 100 percent of compensation up to $15,500. He could defer the balance of his 402(g) limit up to 100 percent of compensation up to $24,000 to the 401(k) plan IRS Publication 560 and IRS Notice 98-4, Q&A C-3.

 

EXAMPLE

Seth, age 53, participates in a SIMPLE IRA plan with Employer A and a 401(k) plan with Employer B.  Based on his compensation he decides to defer $15,500 to his SIMPLE IRA plan ($3,000 of which is considered a catch-up contribution).  In order to stay within his 402(g) annual limit across all eligible plans in which he participates, Seth may only defer up to $8,500 to his 401(k) plan.  Note that Seth’s overall 402(g) limit of $24,000 could be allocated as he wishes between the two plans, as long as his deferrals do not exceed $15,500 to the SIMPLE IRA plan.

 

Conclusion

An individual who participates in a SIMPLE IRA plan and a 401(k) plan of a different employer must look at his or her overall 402(g) employee salary deferral limit and the rule that limits employee salary deferrals to the SIMPLE IRA plan in order to determine the amount that can be deferred into each plan.

© Copyright 2017 Retirement Learning Center, all rights reserved