SIMPLE IRA Plan Fix-It Guide – Annual SIMPLE IRA plan notification requirements weren't followed

 

Mistake

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9) Annual SIMPLE IRA plan notification requirements weren't followed.

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 give required notices to employees.

Prior to November 2, the beginning of the 60-day election period prior to each calendar year, the employer should:

  1. Give all eligible employees a written notice that informs them of their right to make a salary deferral election. If the plan doesn’t have a waiting period, the employer should generally give the notice to a newly hired employee on the employee’s hire date.
  2. Inform employees of their ability to select a financial institution for their SIMPLE IRAs (if the plan allows this option).
  3. Give a Summary Description to each participant.
  4. Notify employees of the employer’s decision to make either a fixed or a matching contribution, including the amount of the contribution.

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 notified employees. In addition, review employee census data to determine eligible employees and the documents you gave to them.

How to fix the mistake:

Corrective action:
Correct your 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 not notifying an employee of the SIMPLE IRA plan caused the employee to be excluded from the plan, then you may need to contribute to his or her SIMPLE IRA. See the discussion under Potential Mistake #4.

Correction programs available:

Self-Correction Program (SCP):
If you failed to follow the terms of the SIMPLE IRA plan document when you didn’t provide the annual written notice to all eligible employees and you’ve satisfied the other SCP eligibility requirements, you may be able to use SCP to correct the mistake. You would have to determine whether:

  • There were appropriate practices and procedures  in place when the failure occurred to ensure compliance with timely issuing the annual written notice.
  • the failure is insignificant.

Voluntary Correction Program (VCP):
If the plan isn’t under audit you may make a VCP submission to the IRS under Revenue Procedure 2019-19 via the Pay.gov website following the procedures in Section 11. Plan sponsors are encouraged to make their VCP submission using model document Form 14568, Model VCP Compliance Statement (PDF), including Form 14568-D, Schedule 4 SIMPLE Plans (PDF) to identify the failure and describe how it’s being fixed. User fees for VCP submissions are generally based upon the current value of all IRAs that are associated with the SIMPLE plan.

Audit Closing Agreement Program (Audit CAP):
If this mistake is discovered on audit, it may be corrected under Audit CAP. Correction of the plan under Audit CAP should be very similar to correction under SCP. The plan sponsor and the IRS enter into a closing agreement outlining the corrective action and negotiate a sanction that is not excessive, considers facts and circumstances, and bears a reasonable relationship to the nature, extent and severity of the failures, based upon all relevant factors described in section 14 of Rev. Proc. 2019-19.

How to avoid the mistake:

Establish administrative procedures to alert you when you must give SIMPLE IRA plan notices. Ensure that your procedures include giving 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 change their prior elective deferral agreement.

Correcting Plan Errors
SIMPLE IRA Plan Fix-It Guide
SIMPLE IRA Plan Overview
EPCRS Overview
SIMPLE IRA Plan Checklist (PDF)
IRA-Based Plans Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / SIMPLE IRA Plan Fix-It Guide / Potential Mistake