Chapter 7 — Administration

Trustees of SIMPLE plans and employers maintaining them are not required to meet the complex reporting requirements of ERISA that apply to traditional qualified plans. This streamlined reporting is one of the primary administrative advantages of the SIMPLE plan structure over 401(k) plans, which must file annual Form 5500 reports, distribute detailed summary plan descriptions, and maintain extensive participant disclosure documentation.

SIMPLE plan administration involves two distinct sets of obligations: those of the trustee (the financial institution holding the plan assets) and those of the employer (who administers the salary reduction program and notifies employees).

The trustee of a SIMPLE plan must provide the employer with an annual plan 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 for making salary reduction elections,
• the procedures for and effect of withdrawals from the plan account, and
• the procedures for and effects of rolling over distributions.

The employer must in turn provide a copy of this summary description to each eligible employee, along with the annual participation notice described below.

The trustee must provide each individual SIMPLE plan participant with an annual account statement by January 31 of the following year. This statement must reflect:

• the account balance as of the close of the calendar year, and
• account activity during the year (contributions, earnings, distributions, transfers).

Trustees also file annual information with the IRS, including contribution amounts, rollovers received, and the fair market value of the account.

Trustees must report all SIMPLE plan distributions to both the participant and the IRS. For SIMPLE IRAs specifically, these reports must indicate whether the distribution occurred within the first two years of the participant’s participation — because distributions during that window are subject to the 25% early withdrawal penalty rather than the standard 10%.

Employers maintaining a SIMPLE plan are not required to file annual reports with the IRS (unlike regular 401(k) plans which must file Form 5500). However, employers must provide each eligible employee with an annual notice before the 60-day election window opens. This notice must inform employees of:

• the employee’s right to make salary reduction contributions under the plan,
• the employer contribution alternative elected for the upcoming year — whether the employer will use the matching formula (and at what rate) or the 2% non-elective formula, and
• for SIMPLE IRAs: the employee’s right to select the financial institution that will serve as the trustee of their SIMPLE IRA.

The notice must include a copy of the plan summary description prepared by the trustee and must be provided in sufficient time before the election window opens so that employees can make an informed decision.

A key feature of SIMPLE IRA administration — and a point that distinguishes it from most other qualified plans — is the question of who selects the financial institution (trustee or custodian) that will hold the SIMPLE IRA.

As a general rule, the employer must allow each employee to select the financial institution that will hold contributions to their SIMPLE IRA. This gives employees control over which bank, brokerage, or mutual fund company manages their retirement savings.

Under certain circumstances, an employer may require that all SIMPLE IRA contributions go to a single trustee chosen by the employer. When the employer exercises this option, employees do not have the right to direct contributions to a different institution.

Regardless of which party chose the trustee, the financial institution must permit the participant to transfer their SIMPLE IRA balance to another SIMPLE IRA without cost or penalty. After the two-year participation period has elapsed, the participant may transfer to any IRA of their choosing.

A transfer is considered made without cost or penalty if no of the following charges are imposed:

• liquidation, transaction, redemption, or termination fees,
• commissions, loads, or surrender charges, or
• any similar fee or charge.

However, a reasonable administrative fee may be charged against SIMPLE IRA accounts from which balances are transferred. This allows the financial institution to recover routine account maintenance costs without imposing punitive exit charges.

Each participant must receive written notice of the transfer procedures, including any time restrictions that apply.