EP Compliance Trends and Tips - Compliance Activities - SIMPLE IRA Plans |
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Not timely amending for EGTRRA changes to SIMPLE IRA plans by adopting the latest version of the IRS model Form 5304-SIMPLE or Form 5305-SIMPLE (August 2005) or updating the prototype plan timely. Employers with prototype plans must adopt the sponsor's EGTRRA changes by signing an acknowledgement of the changes.
Per Revenue Procedure 2002-10 all SIMPLE IRA plans need to be updated for the EGTRRA tax law changes. Also employees should be given notice of the new contribution limits for EGTRRA. This failure deserves special attention as we are finding on exam that over 50% of all plans reviewed have not timely updated the plans for EGTRRA.
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Late deposit of salary deferral payments to IRA accounts for participants.
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Not making the proper matching contributions for participants either by making incorrect matching contributions or not at all.
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Not meeting plan eligibility requirements by not including employees that are
eligible (who have earned $5,000 or more during the year) and should be
participating in the plan or by including employees that are not yet eligible.
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Failing to include bonus payments as compensation for the matching employer contribution.
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Failure to allow employees to make elective salary deferrals when eligible.
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Failure to make the 2% employer non-elective contribution when elected in the plan.
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Failure to give employees 60 day notice before the start of the plan year to change their salary deferral election or to start one when first eligible to participate.
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Controlled groups and affiliated service groups failing to meet plan coverage requirements by including their other employees when eligible as participants in the SIMPLE plan.
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Not limiting the SIMPLE IRA plan as the only plan of the employer. For
example, the employer maintains a SIMPLE plan and also has a SEP or defined contribution plan, which code section IRC 408(p)(2)(D)(i) prohibits.
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Page Last Reviewed or Updated: June 25, 2008