Case of the Week: SIMPLE IRA Plan Annual Notices

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and executive compensation arrangements.

A recent call with an advisor in New Hampshire is representative of a common inquiry regarding Savings Incentive Match Plan for Employees (SIMPLE) IRA plans. The advisor asked:

“My client offers a SIMPLE IRA plan to his employees and he wants to know what the annual notice requirements are for the plan.”

Highlights of Discussion

By November 1 of each year, an employer that sponsors a SIMPLE IRA plan must provide eligible employees with two important notices:  the Summary Description and the Annual Deferral Notice (IRS Notice 98-4).

The Summary Description must include the following information:

  • the name and address of the employer and the trustee or custodian;
  • the requirements for eligibility for participation;
  • the benefits provided with respect to the arrangement;
  • the time and method of making employee elections with respect to the arrangement; and
  • the procedures for, and effects of, withdrawals (including rollovers) from the arrangement.

If a plan sponsor established the SIMPLE IRA plan using either IRS Form 5305-SIMPLE or 5304-SIMPLE, the Summary Description requirement is fulfilled by providing eligible employees completed copies of pages one and two of those forms. If a plan sponsor used a prototype SIMPLE IRA plan document, then the information is obtained from the forms vendor.

The Annual Deferral Notice must include the following information:

  • the employee’s opportunity to make or change a salary deferral choice under the SIMPLE IRA plan;
  • the employee’s ability to select a financial institution that will serve as trustee of the employee’s SIMPLE IRA, if applicable;
  • the plan sponsor’s decision to make either matching contributions or nonelective contributions and the amount; and
  • written notice that an employee can transfer his or her balance without cost or penalty if he or she is using a designated financial institution.

IRS Forms 5305-SIMPLE and 5304-SIMPLE have model Annual Deferral Notices that a plan sponsor can use to satisfy this requirement. If the employer fails to provide one or more of the required notices he or she is liable for a penalty of $50 per day until the notices are provided.

Notification failures of this sort may be eligible for correction under the IRS’ Employee Plans Compliance Resolution System (EPCRS).


Sponsors of SIMPLE IRA plans must ensure compliance with the annual notification requirements for eligible employees or, potentially, face IRS penalties.

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“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2017, Retirement Learning Center, LLC. Used with permission.

Add Your Comments


  1. url url'>Brian Murphy
    Posted October 11, 2017 at 10:30 am | Permalink

    Would the notice requirements be identical for the Simple 401k?

  2. url url'>Jenny Kiffmeyer
    Posted October 11, 2017 at 4:14 pm | Permalink

    Yes, Brian, the notice requirements are similar for the SIMPLE 401(k). Pursuant to Treas. Reg. 1.401(k)-4(d)(3), eligible employees must be given a deferral notice 60-days before the beginning of the plan year. The notice must inform the employee of his/her right to make salary-deferral contributions to the plan and to terminate his or her participation in the plan. The notice must disclose the type of employer contribution as well.

    The Summary Plan Description (SPD) requirement for the SIMPLE 401(k)is the same as for any standard 401(k) plan. Employees must receive a copy when they first become eligible for the plan, and they must receive an updated SPD or Summary of Material Modification (SMM) if the plan is amended.

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