SIMPLE IRA Plan Fix-It Guide – SIMPLE IRA plan notification requirements weren't followed
Find the Mistake
Fix the Mistake
Avoid the Mistake
Determine if you timely provided the required SIMPLE IRA plan notifications to eligible employees.
Evaluate the impact of the failure to provide the required notices and make a reasonable correction.
Establish procedures to ensure that you timely provide required notices to employees.
Prior to November 2, the beginning of the 60-day election period prior to each calendar year, the employer should:
- Provide all eligible employees with a written notice that gives them the opportunity to make a salary deferral election. If the plan has no waiting period, the notice must generally be provided on the date of hire for newly hired employees.
- Inform employees of the ability to select a financial institution for their SIMPLE IRAs (if the plan provides for it).
- Provide a Summary Description to each participant.
- Notify employees of the employer’s decision on whether to make fixed or matching contributions, including the amount of the match or fixed contributions.
How to find the mistake:
Review the SIMPLE IRA plan notification requirements and verify you've followed them in operation. Review plan records to determine if and when you provided notices to employees. In addition, review employee census data and the documents provided to employees.
How to fix the mistake:
Correct the plan administrative procedures to ensure that you meet the notice requirement in future years. Evaluate the impact of failing to provide notices timely. For example, if the failure caused an employee to be excluded from the plan, then corrective contributions may be required. See the discussion under Potential Mistake #4.
Correction program(s) available:
If the employer failed to follow the terms of the SIMPLE IRA plan document when it didn’t provide the annual written notice to all eligible employees and the other SCP eligibility requirements are satisfied, the employer might be able to use SCP to correct the mistake. The employer would have to determine whether:
- Appropriate practices and procedures were originally in place to facilitate compliance with the timely issuance of the annual written notice.
- The failure is insignificant.
Voluntary Correction Program:
If the plan isn’t under audit, you may make a VCP submission using the model documents in Appendix C, including Schedule 4 and Forms 8950 and 8951. The fee for the VCP submission is $250.
Audit Closing Agreement Program:
If this mistake is discovered on audit, it may be corrected under Audit CAP. Correction of the plan under Audit CAP and should be very similar to correction under SCP. The sanction under Audit CAP is a percentage of the maximum payment amount.
How to avoid the mistake:
Establish administrative procedures to alert you of the timing of the notice requirements. Ensure that the procedures include providing a notice to each eligible employee before the annual election period that informs them of the SIMPLE IRA plan and their right to make elective deferral contributions or modify a prior elective deferral agreement.