SIMPLE IRA Plan Legislation Introduced
On July 13, 2018, the SIMPLE Plan Modernization Act was introduced by Senator Susan Collins of Maine and Senator Mark Warner of Virginia. The proposed bill aims to increase the contribution limits for SIMPLE IRA plans. As a reminder, a SIMPLE IRA is an employer-sponsored plan that, similar to a 401(k) plan, allows employees of small businesses (those that employ fewer than 100 employees) to contribute pretax earnings to a retirement account. The proposed legislation would raise the contribution limit for SIMPLE IRA plans from $12,500 (in 2018) to $15,500 (with an additional catch-up contribution increase from $3,000 to $4,500). According to Senators Collins and Warner, these changes are an effort to “encourage more small business employers to offer a retirement savings benefit to their employees” and to “allow small business employees to save even more each year on a tax-deferred basis.” In addition, a press release announcing the regulation explains the SIMPLE Plan Modernization Act would achieve the following:
- Give businesses with 26–100 employees the option of the higher contribution limits, and, to continue to encourage them to transition to 401(k)s when they can do so, increase their SIMPLE plan mandatory employer contribution requirements by 1 percentage point if they elect the higher limits.
- Allow for a reasonable transition period for employers that hire additional employees above 25.
- Make the limit increases unavailable if the employer has had another defined contribution plan within the past three years (to encourage businesses that already have qualified plans to retain them).
- Modernize SIMPLE plan form filing requirements, and modify the rules regarding the transition from SIMPLE plans to traditional plans to facilitate and encourage such transitions.
- Direct the U.S. Treasury to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.