Savings Incentive Match Plans for Employees, or SIMPLE IRAs, are employer-sponsored retirement plans that allow employees of small businesses to make contributions via salary deferrals. These plans are covered by the Employee Retirement Investment Security Act, or ERISA, which details requirements for structure and administration of employer retirement plans.
For SIMPLE IRAs, ERISA dictates which employees are eligible and how a company is to handle employee contributions. Employers must clearly detail the plan's features within a Summary Plan Description. In this document, vesting schedules and an explanation of employees' rights and employer responsibilities are established. ERISA allows employers some flexibility to tailor the eligibility requirements, but generally, all employees over the age of 21 who have worked at least one year of service must be eligible for the plan. Some employers may allow employees to become eligible sooner, sometimes even immediately.
ERISA also defines key issues with regard to handling employee contributions. For example, salary deferral contributions for a SIMPLE IRA must be deposited in the participant's account by the end of the month following the month in which the funds were withheld from the participant's paycheck. Since these accounts are IRAs, the employee participant has full control over the investment choices for his or her SIMPLE IRA unlike a 401(k) plan, which has prescreened funds to review. With a SIMPLE IRA, the employer chooses and files the plan using IRS forms 5404 or 5405, designating a particular financial institution to hold all participants' accounts or allows participants to house their SIMPLE IRA at the financial institution of their choice.