SIMPLE IRA - non-elective contribution and match

[eilano]

In a SIMPLE IRA, we understand that if the Employer chooses a non-elective contribution it must be made for all eligible participants. If they choose a match, please confirm that it is only made for the employees who actually have salary deferrals. A CPA is stating that all eligible employees get the match regardless of whether or not they defer.

[jevd]

Your accountant is correct see Pub 590 and IRC

408(p)(2)(B) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION.--

408(p)(2)(B)(i) IN GENERAL.--An employer shall be treated as meeting the requirements of subparagraph (A)(iii) for any year if, in lieu of the contributions described in such clause, the employer elects to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60-day period for such year under paragraph (5)©.

It doesn't say only those eligible who are deferring. It says each who is eligible to participate. There is also a provision for a MATCH less than 3% but only for a limited # of years. Check Pub 590 and other sections of 408(p) for those rules.

[Belgarath]

Sorry, I disagree. The employer is NOT required, under the matching option, to contribute to any employee who does not elect to defer. I agree that under the 2% nonelective, the employer must contribute for all eligible employees whether or not they elect to defer, but if the match option is chosen INSTEAD of the nonelective, then no contribution is required for an employee who doesn't defer.

[WDIK]

How could it be a match if no salary deferrals are made? I agree with Belgarath.

[Appleby]

Belgarath is right. Remember the premise of a matching contribution is to give the employee an employer contribution equal to the amount the employee defers*. If there is no deferral , there is nothing to match.

jevd – your information is correct but only in respect to nonelective contributions. Maybe you misread the question?

* Matching contributions are subject a limit of the lesser of the amount deferred by the employee or 3 percent of the employee’s compensation. ... the matching contribution cannot exceed the salary deferral limit for the year ( $$8,000 for 2003, $7,000 for 2002)

[jevd]

Understood. My reference to the less than 3% match wasn't to imply that it was required for all eligible, only those deferring. I actually agree with you all. The non-elective contribution was what I was referring to when I said that all eligible must receive it.

Appleby,

You're correct. I did misread the question. It was too early in the A.M.

My apologies to you all.

[Gary Lesser]

Perhaps everyone is correct -- the "required" matching contribution amount just happens to equal $0.

[iRC 408(p)(2)(A)(iii)]

[WDIK]

Dear Custodian:

Please deposit the attached check in the amount of $0.00 and apply it to the match account of all non-deferring participants immediately so that our plan will be in compliance with prescribed rules and regulations.

Yours truly,

Mr. Tungin Cheek