Are You Complying with the SIMPLE IRA Summary Description Requirements?
By Ben Maas, CIS, CIP, CISP
What role does my organization play in required SIMPLE IRA plan disclosures?
Both the employer operating the SIMPLE IRA plan and the financial organization holding the SIMPLE IRA assets play a role in providing a summary description to employees. The summary description must include
the name and address of the employer and financial organization,
the plan’s eligibility requirements,
plan benefits,
the time and method of making employee salary deferral elections, and
the procedures and effects of distributions.
In addition, the employer must indicate the type of required employer contribution for the year and whether the increased deferral limit applies to the plan. Finally, if using an IRS SIMPLE model agreement, the financial organization may satisfy the summary description requirement by providing the employer with a current copy of the model form, with instructions, the information on procedures for distribution (as mandated by Section VI of the model forms) and the financial organization’s name and address.
Based on the content and timing requirements, providing the summary description seems likely to prove a logistical nightmare for our financial organization. Is there any way we can minimize the administrative complexity?
Yes, financial organizations have a few options available to simplify matters. If your financial organization is the designated financial institution (DFI) for an employer’s SIMPLE IRA plan, one option is to have the employer provide eligible employees with all of the summary description information, except for the withdrawal procedures. Your financial organization can then provide its name, address, and withdrawal procedures.
Financial organizations should create a written agreement with employers describing how the summary description obligation will be fulfilled so that the organization can show that a good faith effort to meet this obligation was made if asked by the IRS. For example, a financial organization may provide the employer with its name, address, and withdrawal procedures, and ask the employer to sign an agreement stating that it will provide the complete summary description to its eligible employees each year. Or a financial organization may ask the employer to sign an agreement stating that the financial organization will provide its name, address, and withdrawal procedures to its SIMPLE IRA owners, and the employer will provide the remaining summary description information to its employees each year.
What is the deadline for our financial organization to provide the summary description to the employer?
Financial organizations must provide the summary description to employers “early enough for the employer to meet its notification obligation” to the employees (Notice 98-4). The employer must provide the summary description to each employee before the employee’s 60-day election period, which generally is the 60-day period immediately before the beginning of the new plan year (i.e., November 2 through December 31 of the preceding year). For the employer to meet its deadline, the financial organization should provide the summary description to the employer before November 1, so on or before October 31.
Notice 98-4 does provide one exception to this deadline: for the year in which an employee first becomes eligible to make salary deferral contributions, the 60-day election period may begin as early as 60 days before the date on which the employee becomes eligible or begin as late as the date the employee becomes eligible. Once the employee becomes eligible, however, he must be allowed to begin deferrals regardless of whether the 60-day election period has expired.
