Are SIMPLE IRA Plans Subject to ERISA Rules?

The Worker Retirement Revenue Safety Act (ERISA) covers most employer-sponsored retirement plans together with SIMPLE particular person retirement accounts ( SIMPLE IRAs). SIMPLE IRAs had been designed to make it straightforward for companies with fewer than 100 staff to arrange a tax-advantaged retirement plan for his or her employees.

This is a take a look at how ERISA guidelines apply to SIMPLE IRAs.

Key Takeaways

  • SIMPLE IRAs are topic to ERISA guidelines, which cowl most employer-sponsored retirement plans.
  • ERISA dictates how a plan is structured and administered.
  • Necessities for SIMPLE IRAs embrace spelling out who’s eligible to take part and when, and the way contributions are dealt with.

ERISA Necessities for SIMPLE IRAs

SIMPLE stands for Financial savings Incentive Match Plans for Workers. SIMPLE IRAs do not have the reporting and administrative burden that certified retirement plans (corresponding to 401(ok)s) do, and they’re simpler to arrange.

ERISA, which was enacted in 1974, particulars necessities for structuring and administrating employer retirement plans. For SIMPLE IRAs, ERISA dictates which staff are eligible and the way an organization handles worker contributions.

Employers should clearly cite particulars of the plan’s options inside a Abstract Plan Description. This doc incorporates a proof of staff’ rights and employers’ tasks.

ERISA permits employers some flexibility to tailor the eligibility necessities, however usually, all staff older than 21 who’ve put in a minimum of one 12 months of service have to be eligible for the plan. Some employers might permit staff to turn out to be eligible sooner, generally even instantly.

Worker Contribution Guidelines

ERISA additionally defines key points with regard to dealing with worker contributions. Wage deferral contributions for a SIMPLE IRA, for instance, have to be deposited within the participant’s account by the top of the month following the month by which the funds had been withheld from the participant’s paycheck.

SIMPLE IRAs are topic to contribution limits. For 2022, staff can contribute as a lot as $14,000 (rising to $15,500 in 2023). These age 50 and older can contribute a further $3,000 in 2022 ($3,500 in 2023), which is called a catch-up contribution.

The employer can match this quantity greenback for greenback, for a most of three% of the worker’s compensation. Or instead, an employer can contribute 2% of every worker’s compensation with out requiring worker contributions. This is called a nonelective contribution.

Contribution limits are greater for a SIMPLE IRA than for a standard or Roth IRA, however decrease than the bounds for a 401(ok). For 2022, the annual contribution restrict for conventional and Roth IRAs is $6,000 (rising to $6,500 for 2023) with a $1,000 catch-up contribution allowed for these 50 and older. For 2022, staff can contribute a a lot as $20,000 to a 401(ok) (rising to $22,500 in 2023), with a catch-up contribution of $6,500 (rising to $7,500 in 2023).

Funding Decisions for SIMPLE IRAs

Since these accounts are IRAs, worker members have full management of the funding decisions for his or her SIMPLE IRA. This differs from 401(ok) plans the place sometimes the employer gives a restricted variety of pre-screened funds from which staff might select.

With a SIMPLE IRA, the employer chooses and information the plan utilizing IRS varieties 5304-SIMPLE or 5305-SIMPLE. The employer can both designate a specific monetary establishment to carry all members’ accounts or permit members to maintain their SIMPLE IRA on the monetary establishment of their selection.

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