Simple IRA Eligibility

Submitted by Todd Martin on Wed, 2017-10-04 16:00

Have a client that has 227 employees on their payroll. They are a blue collar company and have about 150% turnover. They are looking at installing a retirement plan and believe strongly they may only have their upper and mid level managers participate which they estimate at 35 participants. I realize that the qualification for a Simple IRA is “100 employees are fewer”. Is that employees on payroll, and thus they would not qualify or is that, participants enrolled in the plan and they would qualify?

As a follow up, if they were able to open additional entities (assuming they would want to do that) and had three separate entities all with less than the 100 employee requirement, even though they would all be owned by the same two partners, can they now qualify for the Simple IRA?

Thank you in advance for your assistance,

T. C. Martin



Submitted by William Tuttle on Wed, 2017-10-04 16:45

  • No, you can not only cover upper and mid level managers in a SIMPLE IRA plan. Their are specifc rules to prevent this kind of discrimination in retirement plan benefits. With a SIMPLE IRA any employee with at least $5K in compensation in any two preceding years and and a reasonable expectation of $5K in compensation for the plan year are eligible.
  • No, you can not create other entities to avoid the 100 employee limit and/or discriminate against some employees. With the same ownership, these new entities would be considered a controlled group and all the employees would be considered as employed by the same entity.
  • Qualified retirement plans are part of public policy and are intended to be universal employee benefits. They are not intended to be exclusively used by highly compensated individuals who would be able to fund their own retirement without a qualifed retirement plan.
  • They could look into the option for a non-qualfied deferred compensation plan which could be offered exclusively to select employees. There are complicated rules and drawbacks to such plans, but they do allow tax-deferral, but in a much more constrained manner than qualifed plans.

Submitted by David Mertz on Wed, 2017-10-04 16:51

  • From § 408(p)(2)(C)(i)(I):  The term “eligible employer” means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year.
  • Regarding multiple entities:  No.  Separate entities having identical ownership would be treated as a controlled group and, therefore, as a single employer for the purpose of establishing a retirement plan.  All eligible employees of all of these entities would have to be covered under the same SIMPLE IRA plan.

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