Trustees of SIMPLE plans and employer’s maintaining these plans are not required to meet the complex reporting requirements of ERISA. SIMPLE plans impose a streamlined reporting regimen on trustees and employers. This is one of the key advantages of a SIMPLE plan over other qualified retirement accounts. Trustees of SIMPLE IRAs (and issuers of annuities within SIMPLE IRAs) are only required to provide employers with a summary description of plan requirements and procedures. In addition, they must provide an annual account statement to each individual for whom a SIMPLE account is maintained. Employers (not trustees) must provide a copy of this summary description prepared to their employees. Employers must also notify employees, annually, of their opportunity to participate by making a salary reduction contribution.
The trustee of a SIMPLE plan must, on an annual basis, provide the employer with a summary description containing the following information:
the name and address of the employer and trustee,
the requirements for participation eligibility,
the benefits provided under the plan,
the time and method of making salary reduction elections, and
the procedures for, and effect of, withdrawals from the plan account.
In addition, the summary description must disclose the procedures for, and effects of, rolling over distributions from a SIMPLE account. Trustees should provide the summary description sufficiently early, so employers may meet their notification obligation to employees.
For SIMPLE IRAs that were established using of Form 5305-SIMPLE, the trustee may satisfy its reporting obligation by providing the employer with a current copy of Form 5305-SIMPLE with instructions, the information required for completion of Article VI of the form regarding the withdrawal of contributions by employees, and the name and address of the financial institution holding the SIMPLE plan contributions. The trustee should inform the employer of the need to fill out the first two pages of the form and to distribute completed copies to eligible employees. Trustees of a transfer SIMPLE IRA need not provide a summary description.
Beginning in 2002, employers with fewer than 100 employees may claim a tax credit equal to 50% of the cost to establish a SEP, SMIPLE or other qualified plan. The credit is limited to $500 per year for each of the first three years of the plan's existance. (click here to view IRS Form 8881
"Credit for Small Employer Pension Plan Startup Costs" in PDF format)
The trustee of the SIMPLE plan must also provide an account statement to each individual for whom the SIMPLE account is maintained by January 31 each year. The statement must reflect the account balance as of the close of the calendar year and account activity during the year. Trustees will also file information with the IRS annually, including contributions, rollovers and fair market value of the account. Trustees will also report any distributions from a SIMPLE IRA and whether a distribution occurred during an individual's first two years of participation in the SIMPLE plan.
Employers maintaining a SIMPLE plan are not required to file annual reports with the IRS. However, employers must notify each employee of the employees’ right to make salary reduction contributions under the plan, of the contribution alternative elected by the employer, and, of the employee's right (if applicable) to select the financial institution that will serve as the trustee of a SIMPLE IRA. The notice must include a copy of the summary description prepared by the trustee for the employer and must be provided immediately before the 60-day period during which an employee may make an election. If a SIMPLE IRA was established using Form 5305-SIMPLE, the employer may simply provide the first two pages of the completed form, instead of the summary description.
Trustees of SIMPLE IRAs
Generally, an employer must allow an employee to select the financial institution that will hold the contributions to the SIMPLE IRA. However, under certain circumstances, an employer may require that all contributions be made to a trustee chosen by the employer. In either event, the financial institution must permit the participant's account to be transferred without cost* or penalty to another SIMPLE IRA. (Or, after the employee has participated in the plan for two years, to any other IRA selected by the participant). In addition, each participant must receive written notice of the procedures, including any time restrictions, that apply to a transfer.
* A transfer is made without "cost or penalty" if no liquidation, transaction, redemption or termination fee, or any commission, load or surrender charge or similar fee is imposed. However, a reasonable administrative fe may be charged to SIMPLE IRA accounts from which balanced may be transferred.