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Employee Plans Compliance Unit (EPCU) - Current Project - SIMPLE IRA Plans - Eligible Sponsors Project

Why did I receive an EPCU compliance check letter?

The information we have indicates you sponsor a SIMPLE IRA Plan, but appear to employ more than 100 employees who earn at least $5,000.

What is the EPCU attempting to determine?

Our goal is to ensure that employers sponsoring a SIMPLE IRA Plan are eligible to sponsor those plans.

What actions do I need to take?

Please respond timely to the request for information. If you believe you are an employer that is eligible to sponsor a SIMPLE IRA Plan, please provide an explanation. You may furnish any documents or clarifying material that you believe will be helpful for us to review. You should make every effort to be as complete and accurate as possible in your responses. Failure to provide the information requested could result in further action, including the examination of your plan.

If You Have Questions

Please feel free to e-mail us with any questions you have about the project and how it relates to you. Please include “SIMPLE IRA Plan Project” in the subject line of the message.

Background

Code section 408 allows employees and employers to contribute to traditional IRAs set up for employees’ own retirement savings. Employees may choose to make salary reduction contributions and the employer is required to make either matching or nonelective contributions.

The employer is generally required to contribute each year either a:

  • Matching contribution on a dollar-for-dollar basis up to 3% of the employee’s compensation (not limited by the annual compensation limit), or
  • Nonelective contribution of 2% of each eligible employee’s compensation.  

Under the “nonelective” contribution formula, the employer must make the nonelective contribution whether or not the eligible employee makes salary reduction contributions. To figure the contribution limit, the employer must take into account an employee’s compensation up to the annual limit ($255,000 for 2013, subject to cost-of-living adjustments in later years).

The employer must make their contribution choice in the adoption agreement or plan document.

An “eligible employer” means an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year. An eligible employer who establishes and maintains a plan under this subsection for 1 or more years and who fails to be an eligible employer for any subsequent year shall be treated as an eligible employer for the 2 years following the last year the employer was an eligible employer.

Other Resources

www.irs.gov - SIMPLE IRA Plan