I am confused by how the 100 employee limit rule is enforced for SIMPLE IRA plans. I was under the impression that the limit was based on the number of employees who are ELIGIBLE to participate in the plan. Since you need to earn $5,000 or more in the two preceding years, a company with high turnover of employees would be able to have more than 100 full time workers, but still have fewer than 100 that are eligible for the SIMPLE IRA plan. However, in reading Notice 98-4, I read this portion from B-1:
Q. B-1: Can any employer establish a SIMPLE IRA Plan?
A. B-1: SIMPLE IRA Plans may be established only by
employers that had no more than 100 employees who earned
$5,000 or more in compensation during the preceding calendar
year (the "100-employee limitation"). See Q&As C-4 and C-5
for the definition of compensation.
For purposes of the
100-employee limitation, all employees employed at any time
during the calendar year are taken into account, regardless
of whether they are eligible to participate in the SIMPLE
IRA Plan. Thus, employees who are excludable under the
rules of § 410(b)(3) or who have not met the plan's minimum
eligibility requirements must be taken into account.
Employees also include self-employed individuals described
in § 401(c)(1) who received earned income from the employer
during the year.
Link:
https://www.irs.gov/pub/irs-drop/not98-4.pdfNow this is talking about establishing a SIMPLE IRA plan. If a plan has already been in place for years, what are the exact rules for who counts as an employee and who does not in terms of the 100 employee limit? With the company I work at, we had 76 eligible employees that were able to participate in the 2019 contribution year for the SIMPLE IRA, but I think we had more than 100 earn $5,000+ in calendar year 2018. We generally have about 100-105 workers in total at any given time. Would we be in a grace period for this year?
