3778 / What are the requirements for a SIMPLE 401(k) plan?

Editor’s Note: Under the SECURE Act 2.0, SIMPLE plan sponsors may allow employees to elect to treat employer contributions to SIMPLE accounts as Roth contributions (beginning in 2023 and thereafter).

Of all the types of qualified plans that are permitted under the IRC, the SIMPLE 401(k) may be the least attractive to a plan sponsor. These plans retain all the eligibility, documentation, and reporting requirements of a qualified plan but are subject to the lower limits and other restrictions of a SIMPLE IRA. A SIMPLE 401(k) plan allows an eligible employer to satisfy the actual deferral percentage test for 401(k) plans ( Q 3802) by meeting the plan design requirements described below, instead of performing annual ADP testing.¹ For a comparison of the features of a SIMPLE 401(k) plan to those of a safe harbor 401(k) plan, see Q 3777.

An eligible employer is one that had no more than 100 employees earning at least $5,000 of compensation from the employer for the preceding year.² An eligible employer that establishes a SIMPLE 401(k) plan for a plan year and later ceases to be eligible generally will be treated as eligible for the following two years. If the failure to remain eligible was due to an acquisition, disposition, or similar transaction, special rules apply.³