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The adoption of the Savings Incentive Match Plans for Employees (SIMPLE) in the Small Business Job Protection Act of 1996 reflects the national concern with insuring that people have adequate security for their retirement, and a willingness on the part of employees to save for retirement in an employer sponsored plan. This is particularly appropriate as troublesome questions arise about the future solvency Social Security.
The goals of the SIMPLE plan legislation, a retirement plan that promotes retirement savings at the same time it lessens administrative burdens on small businesses, sounds like the ideal plan for small businesses looking to attract and retain quality employees. Every small business should take a close look to see if a SIMPLE plan will meet their needs.
In order to be eligible for a SIMPLE plan, the employer must be a small business with fewer than 100 employees. All employees earning at least $5,000 must be eligible to participate in the plan but there is no requirement that a minimum number of employees elect to participate. A SIMPLE plan can use either an IRAs or a 401(k) plan as the plan vehicle.
A participant, including the owner, can make a maximum elective contribution of $6,000, which can be matched by the employer. Although this maximum is not as high as the maximum contributions allowed under other qualified plans, such as a Keogh plan, a SIMPLE plan has the advantages that an owner's maximum contribution is not reduced to reflect employee participation because the nondiscrimination and top-heavy plan rules are not applicable to SIMPLE plans. The lack of nondiscrimination testing also relieves a SIMPLE plan from considerable administrative expense.The employer also has some degree of discretion in regarding his matching contribution in a range from 1 to 3 percent of compensation.
If an employer adopts a SIMPLE plan, the employer cannot offer any other type of qualified retirement plan.
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