Employer Required Contributions in Simple 401K

[Guest dondajean]

Looking for some help in understanding the employer's required contributions in a Simple 401K plan.

If an eligible employee elects to not have contributions withheld from his/her salary, is the employer required to make any contributions into that employee's account?

Thanks for the help!

[Archimage]

The employer must make contributions according to one of two formulas:

1. dollar for dollar match up to 3% of pay

2. 2% of pay nonelective contributions for all eligible participants

No other contributions are permitted.

[Guest dondajean]

So, let me see if I understand:

1. If an employee (for example, Joe Jones) participates in salary reduction, the company matches dollar for dollar up to 3%.

AND

2. If an employee (for example, Steve Smith) does not participate in salary reduction, the company is obligated to 2% of annual income.

For this scenario, both employees make $10,000 annual income. Joe Jones elects to contribute 5% (or $500) to 401K. Steve Smith contributes 0% ($0.00) to 401K.

The obligation of the company to Joe Jones is 3% ($300), and the obligation of the company to Steve Smith is 2% ($200).

Is that correct?

Thanks for your help!

[Archimage]

No, if the employer decides to do the match, the nonelective does not have to be funded. It is the employer's choice to provide one of the two formulas to all participants. If someone did not make deferrals then they are out of luck.

[Guest dondajean]

Got it! thanks!