IRS ISSUES SIMPLE GUIDANCE

The Small Business Jobs Protection Act of 1996 created a new type of qualified plan for small employers called the Savings Incentive Match Plan for Employees, or SIMPLE, IRA. To date, the IRS issued the following guidance to assist employers and sponsors wishing to set up SIMPLE IRAs:

*Forms 5305-S and 5305-SA, model SIMPLE IRAs for use as trust or custodial accounts, respectively.

*Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)--for use with a designated financial institution.

*Form 5304-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE)--not subject to the Designated Financial Institutions Rule.

*Notice 97-6, 1997-2 I.R.B. 26 (Jan. 13, 1997), which contains questions and answers about SIMPLE plans.

*Rev. Proc. 97-8, 1997-1 I.R.B. 187 (Jan. 6, 1997) providing information about
user fees applicable to obtaining determinations about employer plans, including SIMPLE plans.

Now the IRS has issued additional SIMPLE guidance, this time on 1) how to convert a currently approved prototype non-SIMPLE IRA plan into a SIMPLE plan and 2) what is involved to obtain approval of nonmodel SIMPLE IRAs. The new revenue procedure contains "model amendment" language, which is to be used to amend a prototype non-SIMPLE IRA. There is currently no application form specifically to gain approval of prototype SIMPLE plans. Until one is issued, applicants are instructed to use Form 5306-SEP, Application for Approval of Prototype Simplified Employee Pension-SEP. The words "SIMPLE IRA Plan Request" should be written across the top of the Form 5306-SEP. Questions 3, 7, and 8, which relate specifically to SEPs, should be left blank. The revenue procedure also contains transitional relief for employers that want to set up SIMPLE plans before prototypes have been approved. A number of conditions are set out in the procedure to obtain this transitional relief. *

Source: Rev. Proc. 97-29, 1997-24 I.R.B. (Jun 16, 1997).