SIMPLE plans for small business

Article Abstract:

The Savings and Incentive Match Plan for Employees (SIMPLE) was introduced in response to the complexity and steep cost of rules covering qualified retirement plans. Starting in 1997, employers with 100 or fewer employees can offer the SIMPLE plan, which can take the form of either an individual retirement account or a 401(k). The plan must meet three requirements, the first of which is that it is offered to all employees who have been paid a minimum of $5,000 as compensation from the employer during any two previous years and are predicted to make a minimum of $5,000 during the current year. Leased employees and self-employed people may also participate. The second requirement is that contributions to the SIMPLE account of an employee should be fully vested. Finally, the contribution must be defined as a percentage of compensation and the employer must choose a plan that offers an elective contribution or a 2% non-elective contribution.

Public Finance Activities, Employee Compensation-Natl Govt, Column, Employee benefits, Government employees

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Portability of retirement plans

Article Abstract:

The transferability of an employee's retirement assets from the previous employer's qualified plan to that of the new employer is one of the most challenging issues concerning job changes. Regulation Sec 1.401(a)(31)-1 requires qualified plans to provide a direct rollover option to employees so that they can choose to have an eligible rollover distribution to be paid directly to an individual retirement account or to another qualified plan that accepts rollovers. The problem is that many plans are reluctant to accept rollover contributions because of the danger of being disqualified if the contribution is not eligible for the rollover treatment. The Treasury Dept and the IRS both acknowledge the problem and have implemented measures to promote acceptance of rollover contributions. These include the proposed amendment to Regulation Sec 1.401(a)(31)-1 that addresses the issue of invalid rollover contributions.

Qualified benefit plans, Retirement benefits, United States. Internal Revenue Service, Rollovers (Finance)

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401 (k) "SIMPLE"ification

Article Abstract:

The Small Business Job Protection Act of 1996 (SBJPA) has simplified many of the rules governing 401(k). Compliance has become easier because the requirements for satisfying nondiscriminatory tests, namely, the 'Actual Deferral Percentage' and the 'Actual Contribution Percentage' tests, have been streamlined. Furthermore, SBJPA created two new types of plans patterned after 401(k) plans, namely SIMPLE individual retirement accounts (IRA) and SIMPLE 401(k). These new plans allow small businesses to offer most of the options offered by 401(k) plans with less administration. SIMPLE IRAs and SIMPLE 401(k)s have many similarities, including in the areas of employer contribution options, compensation caps and employee deferral limits. They also have several differences that should be noted. These, as well as the administrative requirements for employers and trustees, are discussed.

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