Plus Points of SIMPLE Small Business 401k Plans
The SIMPLE 401k plan was established in 1997 with the main goal to provide small businesses with an effective and cost efficient way to offer retirement benefits to their employees. The target of SIMPLE 401k plans is businesses of not more than 100 employees that have no other retirement savings plan offered to the employees.
To be eligible to participate in the plan, employees have to be no younger than 21 years old and have been in service to the company for at least a year. Employers who start this plan have two options for contribution. The first option requires employers to match all employee contributions up to 3% of their salaries.
While in the second option, which is called a fixed contribution plan, employers pay a flat 2% of their employees’ salaries. All participants are required to make this contribution even if they contribute on their own. This type of small business 401k plan is considered beneficial because it is less expensive if compared to other plans. That is possible as SIMPLE 401k plans are not subject to discrimination tests.
Thus, the annual costs of operating the plan tend to be substantially reduced. The maximum limits for employee contribution in this plan are also lower than other 401k plans, which make SIMPLE 401k plans very much suitable for small businesses.