A Savings Incentive Match Plan for Employees (SIMPLE) is a tax-favored retirement plan that certain small employers (companies with 100 or fewer employees, including self-employed individuals) can set up for the benefit of their employees. A SIMPLE is a salary reduction agreement that allows an employee to choose to reduce his or her compensation by a certain percentage each pay period, and employers contribute matching or non-elective contributions.
A SIMPLE IRA plan is a type of simplified retirement plan for small businesses. Because of its streamlined features, it is not subject to the complex qualification requirements associated with tax qualified retirement plans (John, 2002). Administrative and legal costs therefore are minimized. Other key advantages of SIMPLE IRA plans from an employer’s standpoint include that they are subject to simplified reporting requirements and that the employer (and any other plan fiduciary) will not be subject to fiduciary liability resulting from the employee or the employee’s beneficiary exercising control (direction) over the assets in his or her SIMPLE IRA account.
A retirement plan that may be established by employers, including self-employed individuals (sole proprietorships and partnerships), a SIMPLE IRA allows eligible employees to set aside part of their pre-tax compensation as a contribution to the plan and defer the tax on the money until it is distributed to them (John, 2002). This contribution is called an elective deferral or salary reduction contribution.
Employers are required to make either matching contributions, which are based only on elective deferral contributions made by employees, or non-elective contributions, which are paid to each eligible employee regardless of whether or not the employee made salary reduction contributions to the plan (Kelly, 2001). For a matching contribution, the employer's contribution may match the employees’ elective deferral contribution up to a certain dollar amount or a percentage of compensation....
