SIMPLE PLAN Maryland

[hrchance]

The employer 3% match for a SIMPLE plan is 3% of the employees compensation (annual pay) not 3% of the employees contribution to the simple plan correct? Thanks i.e. the employer can match the employees contribution dollar for dollar up to 3% of the employees annual pay not 3% of the employee's contribution to the plan.

[Pattymd]

It's whatever the plan says it is. I'm not sure how you would expect us to know. Are you asking if there is a law regarding this question?

[hrchance]

Yes, the IRS regs state "in addition to the ee's salary reduction contributions, the employer is generally required to match each employee's salary reduction contribution on a dolar-for-dollar basis up to 3% bais up to 3% of the employee's compensation" which I take to mean annual salary - our agent says we can only match 3% of their contribution (we are drafting a SPD) which makes me think we need a new agent or I am not interpreting the regs properly.

[Pattymd]

Ah, gotcha. Sorry to assume.

If nobody else gets back to you today, I'll try to do some research on this tonight; I was out sick yesterday and I just won't have time during the work day today to do the research.

[hrchance]

Thanks much.

[Cheery]

The IRS offers these 2 options to choose from in a SIMPLE plan.

*
If you decide to make a 2% nonelective contribution, then each eligible employee must receive a contribution equal to 2% of their compensation regardless of whether the employee makes elective deferrals.

*
However, if you decide to do the dollar-for-dollar match up to 3% of pay, then only the eligible employees who have elected to make contributions will receive an employer contribution, i.e., the matching contribution.

[Cheery]

Also, I forgot to mention if this is important, a SIMPLE plan has lower employee contribution limits than a normal 401(k) or IRA.

For 2010, the limits have just been announced and are the same as 2009. $11,500 with a catch-up limit for people of at least age 50 of $2,500.

I found that my payroll service allowed one employee to go over the limit one year because I failed to inform them that my plan was a SIMPLE. My fault, but still a pain to fix.

[hrchance]

Thanks for your help and pardon the questions - I am new to this part of benefits - so if you choose to do the dollar for dollar match - you can choose to only match up to a certain amount but the amount must be the same for all employees? Can you match more for management? And you can match up to 3% of their pay? Is that what I am hearing? Thanks again,

[DAW]

Just a thought, but you might want to take a look at IRS publication 560, Retirement Plans for Small Business.

[hrchance]

Thanks so much. A lot of good information.