SIMPLE Plan Question

Submitted by Kevin O'Hearn on Thu, 2022-09-01 19:22

Hello,

There is a person that owns three companies that are a control group and wants to set up a SIMPLE plan for the businesses. The issue is that our custodian’s SIMPLE agreement doesn’t allow for multiple affiliated companies to be covered by one plan document. My questions are:

1. Best practice is for the owner to set up one SIMPLE plan that covers the employees of all three companies, correct?

2. In the event a SIMPLE plan cannot accommodate multiple companies, is it okay to set up three separate SIMPLE plans with identical eligibility and matching formula?

Thank you.



Submitted by Alan - IRA critic on Thu, 2022-09-01 20:03

  1. Yes.
  2. No, see the following example copied from IRS Notice 98-4.
  3. “Example: Individual P owns Business A, a computer rental agency, that has 80 employees who received more than $5,000 in compensation in 1996. Individual P also owns Business B, which repairs computers and has 60 employees who received more than $5,000 in compensation in 1996. Individual P is the sole proprietor of both businesses. Section 414(c) provides that the employees of partnerships and sole proprietorships that are under common control are treated as employees of a single employer. Thus, for purposes of the SIMPLE IRA Plan rules, all 140 employees are treated as employed by Individual P. Therefore, neither Business A nor Business B is eligible to establish a SIMPLE IRA Plan for 1997.”


Submitted by Kevin O'Hearn on Thu, 2022-09-01 20:30

Thanks.  

  1. How can neither business be eligible for a SIMPLE plan? If the owner wants to set up a plan for all its employees, what entity would establish the SIMPLE Plan?

 

  1. The guidance makes mention of a sole props and partnerships…what if the companies are both incorporated?


Submitted by Alan - IRA critic on Thu, 2022-09-01 22:03

  • Good point. The quote does not answer your exact question either way, which is whether 3 separate SIMPLE accounts will be recognized by the IRS as a single plan.  In the above quote the reason neither business is eligible is that total employees of both exceed 100.  Whether identical separate SIMPLE IRA accounts for each combined employer operated in a manner that takes into account the total number of employees of all employers  or any other requirements violates IRS rules is not clear. At least none of the IRS guidance seems to address this.
  • If your custodian were instead to allow multiple employers that are required to be treated as one combined employer under one SIMPLE plan to accept a single SIMPLE plan, it would eliminate any potential issues. 


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