Simple - IRA Plan Eligibility

[Guest ban1957]

During October 2004, I will be giving the employee's their notification

for 2005 for the Simple-IRA we have set up for them. The plan has been in place

for about five years. Since I am new to this I have several questions.

Question: For compensation do I look back from the day each employee was

hired through December 31, 2004 to determine who received at least $5,000 in compensation in any two years or is it from the date each employed was hired

through December 31, 2003. I might be getting hung up on the date the plan is

effective, January 1, 2005.

Question: The phrase "reasonably expected to receive at least $5,000 during the current calendar year is eligible to participate in the SIMPLE IRA". This phrase,

in my situation, does it refer to wages expected to be received in 2005? Also,

the phrase, "reasonably expected", what exactly does that mean. Wouldn't

most people qualify for the simple plan under this criteria if they meet the rule

Thanks for your help

Dave

[Gary Lesser]

The compensation measuring period is the calendar year. In how many CY preceeding 2005 did employee earn the compensation requirement (not to exceed $5,000) and whether or not consecqutive? For current year, "reasonably expected," is not a defined term. The SIMPLE, SEP, and SARSEP Answer Book, Q 14:58 (9th Ed) states the following:

Example 2. For 18 years Donna has been a full-time employee of the Giant Motor Company, which maintains a SIMPLE. Donna’s annual salary is $36,000. Shortly before the plan’s election period (November 2 to December 31), Donna requests and is granted an 11-month personal leave of absence to start on January 1, 2003. For 2003, Donna is reasonably expected to earn only $3,000 and will not be eligible to participate in the plan for 2003 because Giant imposed a $4,000 compensation requirement for the current year.

Example 3. The facts are the same as those in Example 2, except that (1) on January 2, 2003, Donna decides not to take the leave of absence; (2) Giant had duly elected to make the 2 percent nonelective contribution; and (3) the plan requires that an employee have $5,000 of current compensation to participate but only $2,000 of previous compensation to be eligible. Donna is not entitled to receive a nonelective contribution because she was not an eligible employee; that is, she was not reasonably expected to earn $5,000 (even though she did earn more than $2,000).