 The SIMPLE Plan, initiated by federal legislation in 1997, may be a good alternative to a 401(k) for employers that would like to limit their contributions and circumvent the complicated government discrimination rules and burdensome and expensive paperwork associated with other retirement plans. Like the name implies, this plan is simple, while at the same time providing a valuable retirement benefit to your valued employees. Corporate retirement plans help to attract and retain key employees.
The Savings Incentive Match Plan for Employees (SIMPLE) plan is funded with individual retirement accounts, which means that the following requirements apply to the SIMPLE:
- Participants must be fully vested in all benefits at all times
- Assets cannot be invested in life insurance or collectibles
- No participant loans are allowed
Eligible Employees
Any type of business entity can establish a SIMPLE; however, the business cannot have more than 100 employees (only counting those employees who earned $5,000 or more of compensation). Also note that to be eligible, the sponsoring employer cannot maintain any other qualified plan, 403(b), or SEP at the same time it maintains a SIMPLE.
Contributions
In a SIMPLE, all eligible employees have the opportunity to make elective pretax contributions of up to $10,000 (subject to cost-of-living adjustments). Unlike the 401(k) plan, there is no nondiscrimination testing, meaning that highly compensated employees can make contributions without regard to the salary deferral elections of the non-highly compensated employees. However, in exchange, the SIMPLE has a mandatory employer contribution requirement. This contribution can be made in one of two ways: The employer can make a dollar-for-dollar matching contribution on the first 3 percent of compensation that the individual elects to defer, or the employer can make a 2 percent nonelective contribution for all eligible employees.
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A simplified employee pension (SEP) is a retirement plan that uses an individual retirement account (IRA) or an individual retirement annuity (IRA annuity) as the receptacle for contributions. As the name implies, this type of plan is simpler than a qualified retirement plan (such as a 401(k)), making it in many cases attractive to the small business owner. The documentation, reporting, and disclosure requirements are less cumbersome than for a qualified plan. Trust accounting is also eliminated, because separate IRAs are established for each participant and all contributions are made directly to each participant’s IRA. Since contributions must be nonforfeitable, the participant’s benefit at any time is simply the IRA account balance.
The employer may, on a discretionary basis, make contributions, which are allocated to participant’s accounts.
Eligible Employees
The rules require that contributions be made for all employees who have met all three of the following requirements.
- attained age 21
- performed services for the employer for at least 3 of the immediately preceding 5 years
- received a minimum compensation level for the year
Vesting
All contributions to a SEP must be immediately and 100 percent vested. From an employer’s perspective, this requirement is more onerous than for qualified plans, but remember that employees can be excluded from the plan until they have completed 3 years of employment.
Contributions
The SEP is generally designed to mirror a profit-sharing plan—that is, company contributions are made on a discretionary basis, although the plan can require specified employer contributions. What makes the SEP different from the profit-sharing plan is that contributions must be allocated to participants in such a way as to provide a benefit as a level percentage of compensation. (For example, all employees receive an allocation of 5 percent of compensation.)
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Businesses 
