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 ^[1]).

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 ^[2] or 5304-SIMPLE ^[3], 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.