SIMPLE PLAN Setup
Hello. A Simple IRA plan was set up; initially, three employees, including the owner, were interested in enrolling. The other two employees decided not to enroll in the SIMPLE Plan. Is there a requirement of documentation the owner needs to maintain that three employees had interest and then chose not to register, leaving only the business owner? Bet, CS
Permalink Submitted by Alan - IRA critic on Tue, 2023-08-01 22:04
There are no IRS Regs on required documentation, but it would still be wise to keep a copy of the annual notification to each employee. In some cases such as non elective contribution plans, the employer would have to open a SIMPLE IRA for the employee to receive the mandatory contribution. Even without more detailed documentation requirements, to provide a defense for complaints it is a good idea to keep some form of documentation of the employee’s decision. Employee eligibility should be the basis of any documentation the employer keeps, rather than employee interest, which can change.
Permalink Submitted by Charlie Pesiridis on Wed, 2023-08-02 08:38
Thank you.Would the owner or only one enrolled in the plan still have to make a nonelective contribution, if the SIMPLE Plan has a nonelective contribution, to the three employees that opted out? Best, CS
Permalink Submitted by David Mertz on Wed, 2023-08-02 11:11
The notification to employees prior to the 60-day election period was required to indicate the employer’s decision to either do matching contributions or a 2% nonelective contribution for the year. If that notification indicated that there would be a 2% nonelective contribution for the year, that contribution must be made for each eligible employee whether the employee chose to make elective deferrals or not. In other words, an eligible employee cannot opt out of the 2% nonelective contribution. See IRS Pub 560.