Employer unable to make contributions to SIMPLE IRA

[Guest Parker]

What are the ramifications on an employer and its employees if the employer is unable to make its matching (or nonelective) contribution to a SIMPLE IRA due to financial difficulties? This assumes that employees had made salary deferrals during the year, and that an employer contribution is required to be made.

Is there an IRS penalty on the employer if it doesn’t make the contribution? Will the DOL get involved, and what are its remedies? Or is it solely a state law matter?

Further, are there any tax consequences on the employees? (It seems unlikely as long as nothing is distributed.) Thank you.

[Gary Lesser]

The SIMPLE IRA becomes a "Complex" and all of the amounts put in by employees are treated as wages. The amounts in the SIMPLE IRAs are prohibited excess contributions and should be withdrawn by the employees. It would be nice if the employer provided a notice. State law is another issue.