SIMPLEs were designed by Congress in 1996 to make it, well simple, for employers with fewer than 100 employees to establish tax-advantaged retirement plans for their employees. Hence, the legislative branding naming the new law the Savings Investment Match Plan for Employees to make the acronym, SIMPLE.
It’s a special type of IRA and adopted because they’re easy to use. But they still have to be in compliance with many of the tax and ERISA provisions required of 401(k) and other qualified plans in order to continue to enjoy tax advantages.
It’s an especially current concern for those employers who have decided that a SIMPLE no longer fits, and will be replacing it in 2021 with a 401(k) plan. SIMPLEs must continue to be kept in compliance prior to termination, and plan document or operating mistakes should be corrected to preserve the tax advantages.
SIMPLEs haven’t always fared well in IRS audits with over 50% reported to have operational errors. Here are the 9 most frequent mistakes that the IRS has found need fixing.