It’s SIMPLE!

Congress passed the “Small Business Job Protection Act of 1996” in August of 1996. Besides the much discussed minimum wage increase, the bill includes numerous pension simplification provisions which, in most instances, became effective January 1, 1997. Here is a summary of the provisions in the Act for the new retirement plan known as SIMPLE - Savings Incentive Match PLan for Employees:

Provisions include:

• Available for employers with fewer than 100 employees.
• Must include all employees who had at least $5,000 in compensation during any two preceding years and are reasonably expected to receive that much in the current year.
• Employees may defer up to $6,000 into their SIMPLE accounts (salary reduction like 401(k))
• Employers may contribute using one of three methods:
  • Match each employee’s contribution up to the first 3% of the employee’s pay.
  • In any two of every five years, an employer using a SIMPLE IRA Plan can match as low as 1% after notifying employees.
  • Contribute 2% of compensation for each eligible employee, whether the employee contributes or not.
• There is 100% vesting at all times.
• Distribution rules under SIMPLE plans are similar to current IRA rules. However, the penalty tax on premature withdrawals is increased from 19% to 25% for distributions made from a SIMPLE account within the first two years of an employee’s commencement of participation in the plan.
• SIMPLE replaces SARSEPs (Salary Reduction Simplified Employee Pension). However, SARSEPs established before January 1, 1997, can still be maintained. The SIMPLE Plan may not be maintained with any other plan that accrues benefits or receives contributions.

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Contact Us

If you would like more information about the Savings Incentive Match Plan for Employees, please contact us at 888-669-4883, or email us at info@benico.com.