SIMPLE IRA--not notified of eleigbility

[Guest jerseygirl]

I have been with this office since 3/07. It has come to my attention last week that there is a SIMPLE IRA plan that some of the employees are in. It seeems it has been inplace for about 8 years. When I approached my employer about the plan he said yes for employees after 3 years of employment,I am there almost 4-I asked him for the information and he is supposed to get it for me next week.

My questions : Is the 3 year for elegibility correct?-He said he decided the terms of the elegibility--I thought it was $5000in 2 previous calander years?

Since I started in 3/07 and made over$5000 in 2007 and 2008 would I have been elegible 1/09 or 3/09 or 1/10?What date would I have been elegible and when should I have been notified?

I also have a coworker who was hired a month before me who has not been informed of this. I understand that if he missed notification there would be some kind of "correction" by the employer into the plan.How does that get calculated and by whom? Does this get reported to anyone? ERISA,IRS,DOL? ESpecially since I am not the only one. Any input appreciated.

[Kevin C]

Could it be a SEP instead of a SIMPLE? A 3 year eligibility requirement sounds like a SEP. If it was in place before 1997, it could be a SARSEP (salary reduction SEP).

Let us know what you find out when you get the information from your employer.

[Guest jerseygirl]

Well, I asked the boss again as to type of plan and he insisted it is Simple Ira with Vangard not SEP or SARSEP. But now he says he thinks it could be 3 or maybe 5 years before elegible. When I asked who was responsible to notify employee he did not know. He said he would try to find some information forme by next week.There are several employees who have been there for more than 2 years who had no idea that there was an Ira available.

[Kevin C]

Maximum eligibility requirements for a SEP are age 21 and service in at least 3 of the 5 preceding years.

As you know, maximum SIMPLE eligibility requirements are earning at least $5,000 in at least two prior years and reasonably be expected to earn at least $5,000 for the year.

For both, union employees can be excluded. The Employer is responsible for notifying eligible employees.

Regardless of the plan type, it sounds like you have been improperly excluded. Hopefully, it was an honest mistake. My suggestion is to quietly wait and see what kind of information you get from your boss. A week or two more won't make much difference at this point. I think it's too early to start a discussion about contacting a three letter agency. Post back when you get more information, or in a couple of weeks if you don't.

[Guest jerseygirl]

OK , now the employer has verbally informed me and at least 6 others that I can participate in the simple plan and I have receivd e- mail to set up acct. I did not receive the written notice of elegibilty with aSPD or salary reduction form yet. So I do not have a confirmation of the type of plan beside his word.

Of the employees mention above all except 1 were here 3-6 years not including 2employees who left in the past 6 months who were here 4-5 years who were never informed of ira. There are currently 3 employees plus the employer who have been participating in the plan since it was started.

It is my understanding that there should be a correction into my ira acct a payment by the employer for me for 2009 and 2010 that would consist of 1.5 percent of salary plus 3 percent employer plus some interest for each year.

I had a phone call from my employer last eve saying his accountant said I could contribute to my IRA( which is just now being set up) for 2010 up until 4/15/11 and he would do the 3percent match for 2010. He wanted an answer right away and was annoyed when I wanted to look into it first. First I have no idea how that could be done since I thought SIMPLE was only by employee salary deferral for the current year and also my acct was not in place at end of 2010. Is this something that is allowed? Could I fund a SIMPLE for 2010 from 2011 salary deferral or a lump sum deposit into the simple account?

Does the employer need to use the SCP or the VCP through the IRS/EPCRS or can he just do his own thing and how is it determined if the errors are significant? How can be assured that this will be resolved in a timely fashion?

It seems there were 2 errors: employees not notified and eligible not allowed to contribute becase not notified. What about those employees who left in the past 6 months?

[Kevin C]

I don't see any way you can make salary deferral contributions now for 2010. Deferrals come out of your pay, so they can't be made retroactively. The IRS and DOL publications on SIMPLE IRA's say that employee deferrals must be deposited within 30 days after the end of the month that the amount deferred would otherwise have been receivable as cash. So, the deadline to deposit amounts that were actually deferred in December 2010 is 1/30. The accountant may be referring to funding a regular contributory IRA for 2010.

He is not required to use EPCRS. It is a voluntary program. Other correction methods may be ok, but if you follow EPCRS, you know the IRS will accept the correction. It looks to me that a SIMPLE can only use SCP (Self Correction Program) for insignificant operational failures. Insignificant vs significant is addressed in Rev. Proc. 2005-50, Section 8. Some of the factors to consider are in 8.02. It sounds like they improperly excluded most of the eligible NHCE employees for multiple years, so I think that would be considered a significant failure.

http://www.irs.gov/irb/2008-35_IRB/ar10.html

The correction method should be for the employer to contribute half of the missed deferrals plus all of the missed match, plus lost income. Under EPCRS, they have to correct the errors for all years, even if they happened in closed tax years. The timing of it will be up to the employer since they are the ones who have to make the corrections. Normally corrections are made in a timely manner when a failure is discovered because it can get much more expensive if the government comes calling before the correction is at least substantially completed.

You might tell them a friend of yours told you it is too late for you to defer for 2010 and it would create problems for your employer if you tried. You don't want to cause problems, so you will start deferring for 2011. Then, I would see what they do. Hopefully, they will go ahead and fix it. Keep us updated.

[Guest jerseygirl]

OK- now some interesting info. The employer had called people into office to "tell " them about the Simple Ira. They were told they had to contribute minmum of 3% and to let him know if they wanted to participate and then he would have them set up an account. 2 of us knew otherwise that we had to have SDP , notice of elegiblity and salary reduction agrrement -so we asked for it and we got 5305 SIMPLE and also asked about the corrective contributions. 2 of the employees were asked to sign WAIVERS that they did not want to participate and the others were told if they want to participate let him know. NO ONE was informed that they were wrongly excluded and were owed corrective contributions for missed deferals, or did they receive 5305 SIMPLE that included notification of eligibilty and salary reduction, despite the fact that I had provided the employer with IRS weblinks for the requirements.because he was complaining he didn't know where to find the info. At this time even the paticipating employees say they have not been receiving yearly notification(5305).

The employer came to me last Wednesday with a number for my corrections that appears to be correct except for the adjustments for earnings. When I brought this to his attention he went ballistic and said he couldn't believe it wasn't enough for me and he wanted me to stop riding him on this. Then started about another employee who also is in another pension at another job and she was asking for her corrections also. I reminded him that we are all entitled to corrections and its his responsibility to manage the plan. His response was that he is a "XXXXX" and he does't know about this stuff and if people don't want to participate he cant make them and he just might shut it down. I suggested he should have his accountant/tax attorney help him with this situation.

On MondayI sent him the Appendix F, section 4 SIMPLE for the VCP guidelines as well as the IRS FAQ for retirement plans and referred him to the Vanguard employer kit instructions.

It is my understanding that even if an elegible employee does not want to contribute t 5305 or similar doc is required with $0 salary reductions.

If an account is not set up--one MUST be set(even if by employer for the employee) up if corrective contributions are required and this includes the 2 emploees who left in the past6 months.

5305 should be provided at time of elegibility and also yearly.

I know the employer is not naive and I feel he is trying to avoid taking care of his errors by not informimg his employees properly.

I have tried to tell some of the other employees the correct info. It is really upsetting to see my fellow employees taken advantage of because they are all fearful for their jobs and therefor are afraid to approach the employer.

What options are open to them or even me to help get this resolved so the plan can get corrected and continue.

Any advise will be helpful.

[GMK]

His response was that he is a "XXXXX" and he does't know about this stuff and if people don't want to participate he cant make them and he just might shut it down. I suggested he should have his accountant/tax attorney help him with this situation.

As Kevin C said, we hope this was an honest mistake, and that the employer jumped into this without realizing that "simple" in the name doesn't eliminate some complexity in the plan administration.

In any case, the employer needs knowledgeable advice now, whether he "shuts it down" or not.

Good for you in providing the employer with factual information, and thank you for keeping us informed. The "Your Rights under ERISA" section of the SPD doesn't seem so boring any more.

[Kevin C]

It sounds like you have given him everything he needs to correct it properly. Hopefully, he will do the right thing. Give him some time and see what he does. If he doesn't fully correct and you want to pursue it further, you can contact a DOL EBSA benefit advisor. You can find contact information for the regional EBSA offices on the DOL website.

[Guest jerseygirl]

I did not receive an SPD only a 5305 SIMPLE form which I thought was allowed to be used in place of SPD. I don't see any reference to "Your rights under ERISA" section that was mentioned above. Is the SPD something different that I should have received? Otherwise how would other employees know about the DOL role in ERISA?

How much time is reasonable for some of previous issues?

[Kevin C]

The Form 5305-SIMPLE instructions says providing employees a copy of the form satisfies the summary requirement. The SPD GMK was referring to is something required for the qualified plans that most of us on the forum work on. One reason employers use a SIMPLE instead of a 401(k) or other qualified plan is that with a SIMPLE, they don't need to hire someone like us. I am surprised the IRS didn't include ERISA rights language as part of the summary requirement.

At this point, I would give your employer a couple of more weeks and see if he corrects things on his own.