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I was just given the following situation from a broker:

An employer set up a SIMPLE-IRA in 2004. The plan utilizes the 3% match. This match was calculated each year by the company's accountant. Rather than computing the max match on 3% of compensation, he calculated it on 3% of the employee's salary deferrals. Therefore, he has undercontributed the match every year since inception. The only partially good news is that the only participants in the plan have been the owner, his wife and 1 employee.

What would you recommend to the client?

1. Determine the shortfall to the employee, adjusted for earnings, and just deposit it? - I don't like this solution

2. Determine the shortfall for employee and the owners, adjusted for earnings, and deposit it? - I don't like this either

3. Just forget about it and correct it going forward? - I don't like this solution either

4. Apply to one of the voluntary compliance programs for correction? - maybe a possibility, but, cost could be a consideration

Any other suggestions and/or comments on my possibilites above would be appreciated.



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Consider the streamlined application procedure under the EPCRS. See RP 2008-50, Appendix F (and section 4 of App F).

None of the other methods will give any assurance that the plan is fixed, or that the additional contributions are deductible.

Sleeping with one eye open (method 3) could tun out to be a disaster (lots of cummulative penalties for employer and possibly employees)

Hope this helps.

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