Spliting simple IRA contributions

[Guest jasper]

I currently have a simple IRA for my employees with a full service broker. He offers front load and back load funds and some of my employees want no load funds. Are

there any financial institutions that will let you invent in whatever you want with whoever you want? I checked at a bank and they will only take all employees or none. They also charge one percent per year of your total market value. Isn't that worse in the long run than buying a loaded fund?

[Guest Steve Hample]

First let me disqualify / qualify myself. I am a full service type broker, plus a CFP, plus an investment advisor and I have a SIMPLE in my own office for myself and my employees.

My initial response to the employee wanting a "no load" fund is: too bad. Go search for those funds on your own time and with your own money. The split which was suggested is administratively impractical. If your company had 90 employees with a $3 millon payroll then it might be worth designing a special plan. But if you were at that size you would probably not choose a SIMPLE in the first place.

A SIMPLE plan is designed to keep things SIMPLE. The full service broker probably provided the plan free of charge and spent time with the employees to answer questions at no charge. One could instead pay an hourly fee to an investment advisor to come and make such presentations and to an attorney to draw up a special split plan and submit it to the IRS for months of review, which expense and delay might cause the employer to not offer a plan at all!

The employee, in my opinion, is looking a gift horse in the mouth. Tell the employee the answer is NO. This is a SIMPLE plan and were keeping it that way. However, the employee may allocate his/her dollars to a money market ("no load") account and later transfer the balance to an IRA of the employee's choosing; in that way the employee can do a "no load" investment, but at the employee's effort and time, not the company's. Your full service broker can explain this option.

Most employees appreciate the matching contribution, but sometimes need to be reminded of it. Ask your broker to conduct an annual employee meeting and show them the benefits of this plan which you have offered.

You could go to a no load fund yourself and set up a totally no load SIMPLE, but sometimes it's wise to share the responsibility and have an outsider describe the plan.

In a way it's like an old fashioned gas station. The attendant checks your oil, washes your windows, checks your tires and the gas is a bit more expensive, but the service is worth it. Your choice.

Good luck.

[Guest SuperMan]

Either way, the choice of investment funds is entirely in the hands of the participant. My understanding of SIMPLE IRA plans is that the financial institution is either a Designated Financial Institution (DFI) or a non-DFI. The SIMPLE IRA plan document indicates the type of plan that you have.

DFI: employer sends all contributions to the DFI and, for those participants that elected outside funds, the DFI must do a "no-cost, no-penalty" transfer to the participant's SIMPLE IRA account established with the outside funds.

Non-DFI: employer must send the contributions to each separate money manager whereever the participant opened the SIMPLE IRA account.

When these plans are sold many salepeople conveniently don't explain the full flexibility that the participant has. Admittedly, this is not as SIMPLE for the employer (with a non-DFI) or as LUCRATIVE for the broker (with a DFI).