3642. What requirements apply to employer contributions to a SIMPLE IRA plan?Nuco Employeercline202012-10-22T15:55:00Z2014-06-03T20:45:00Z2014-06-03T20:45:00Z34362486Hewlett-Packard205291714Site Map/Individual Retirement Plans/SIMPLE IRASIMPLE IRA2005-01-19T00:00:00ZTaxFactsDefaultArticleSite Map/Individual Retirement Plans/Quick Clicks/Elective Deferral LimitsSite Map/Retirement Plans/Quick Clicks/Elective Deferral Limits114950242-00-tf1.xml243.00;#1793;#1797;#2281;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What is a SIMPLE IRA plan?108100.000000000TaxFactsDefaultArticle2010-01-19T08:13:16ZSBMEDIA\moss-admin4111dbb3-6119-41fc-9d9c-28768801cec4|860213e4-571f-47a5-87b8-447a05d125dc|e240e06b-b69b-4c38-8682-1269ccd547983642. What requirements apply to employer contributions to a SIMPLE IRA plan?The requirements for the employer’s contributions to employee SIMPLE plans are as follows:Matching formula: Under this formula, the employer is generally required to match employee contributions dollar-for-dollar up to 3% of the employee’s compensation.IRC Sec. 408(p)(2)(A)(iii). (Matching of catch-up contributions is not required.See REG-142499-01, 66 Fed. Reg. 53555 (Oct. 23, 2001).) The employer may elect to reduce the matching percentage in a calendar year for all eligible employees, but such reduced percentage cannot be below 1%. To get the lower percentage, the employer has to notify the employees of the election within a reasonable period of time before the 60-day election period for electing to participate in the plan. Also, the employer may not use the lower percentage if the election would result in the percentage being lower than 3% in more than two out of the five years ending with the current year. If the employer (or a predecessor employer) has maintained the plan for less than five years, the employer will be treated as if the percentage was 3% in the prior years during which the arrangement was not in effect.IRC Sec. 408(p)(2)(C)(ii). Also, if the employer made nonelective contributions for a year (instead of matching contributions) under the formula described below, it will be treated as having a percentage of 3% in that year.Notice 98-4, 1998-1 CB 269.The compensation limit under IRC Section 401(a)(17) does not apply for purposes of the matching formula; thus, the 3% match could reach the maximum of $12,000 (in 2014) for an employee with compensation of $400,000 in a year.See Notice 98-4, 1998-1 CB 269; IRC Sec. 401(a)(17).A matching contribution made to a SIMPLE IRA on behalf of a self-employed individual is not treated as an elective employer contribution for purposes of the limit on such contributions.IRC Sec. 408(p)(9). The purpose of this provision is to treat self-employed individuals in the same manner as employees for purposes of the limit on elective contributions.Nonelective contribution formula: As an alternative to making a matching contribution, an employer can elect to make a nonelective contribution of 2% of compensation on behalf of each eligible employee with at least $5,000 in compensation from the employer for the year. The employer is required to make a nonelective contribution for all eligible employees regardless of whether the employee has made a contribution to the Simple IRA for the calendar year. If the employer makes this election, it must notify the employees within a reasonable time before the 60-day election period for electing to participate in the plan.IRC Sec. 408(p)(2)(B). The compensation limit under IRC Section 401(a)(17) does apply for purposes of this formula; thus, the maximum amount that could be contributed in nonelective contributions for an employee would be $5,200 (i.e., 2% of $260,000 (in 2014)).See IRC Sec. 408(p)(2)(B)(ii).A SIMPLE IRA is not subject to the nondiscrimination or top-heavy rules, and the reporting requirements it must meet are simplified.See IRC Secs. 408(p)(1), 416(g)(4), 408(l)(2).