SIMPLE Plans

A qualified retirement plan known as a Savings Incentive Match Plan for Employees (SIMPLE plan) is one of the easiest and most convenient methods for a small business to provide retirement income to its owner and employees. Under a SIMPLE plan, an employer and an employee make contributions to a savings account set up for the employee. SIMPLE plans may take the form of either an IRA or a 401(k) qualified cash or deferred arrangement.

Setting up a SIMPLE plan is very easy because many financial institutions will help an employer with setting one up. Such plans are also fairly straightforward, inexpensive, and low-maintenance when it comes to administrating them.

A SIMPLE plan may be adopted by employers with 100 or less employees who earned $5,000 or more in compensation during the preceding calendar year. An employer is free to use less restrictive eligibility requirements (like lowering the compensation amount), but cannot impose any other conditions for participation. An employer, however, cannot start a SIMPLE plan if another qualified plan is maintained.

An employer's SIMPLE plan does not have to include employees who are covered by a union agreement that includes retirement benefits that were bargained for in good faith. The plan also does not have to include nonresident alien employees who have received no U.S. source wages, salaries, or other compensation from the employer.