3707 / What requirements apply to employer contributions to a SIMPLE IRA plan?

Matching contribution: Under this option, the employer is generally required to match employee contributions dollar-for-dollar up to 3 percent of the employee’s compensation.¹ (Matching of catch-up contributions is not required.²) The employer may elect to reduce the matching percentage in a calendar year for all eligible employees, but such reduced percentage cannot be below 1 percent. To get the lower percentage, the employer must notify the employees of the election within a reasonable period of time before the 60-day election period for electing to participate in the plan.³ Also, the employer may not use the lower percentage if the election would result in the percentage being lower than 3 percent in more than two out of the five years ending with the current year. If the employer (or a predecessor employer) has maintained the plan for less than five years, the employer will be treated as if the percentage was 3 percent in the prior years during which the arrangement was not in effect.⁴ Also, if the employer made nonelective contributions for a year (instead of matching contributions) under the formula described below, it will be treated as having a percentage of 3 percent in that year.⁵

The compensation limits under IRC Section 401(a)(17) do not apply for purposes of the matching formula; thus, the 3 percent match would reach the maximum employer contribution limit of $16,500 in 2025 for an employee with compensation of $550,000 in a year.⁶

A matching contribution made to a SIMPLE IRA on behalf of a self-employed individual is not treated as an elective employer contribution for purposes of the limit on such contributions.⁷ The purpose of this provision is to treat self-employed individuals in the same manner as employees for purposes of the limit on elective contributions.