In Retirement News for Employers (Winter 2012), the Internal Revenue Service posited the following situation about an employer that maintains a SIMPLE IRA for its employees. Some of its employees started or stopped contributing to the SIMPLE IRA in the middle of the year. The question: Is the employer required to make its 3% match based on the employees’ compensation for the entire calendar year, or only the compensation earned during the period they actually contributed to the plan?
The answer: The employer must base its SIMPLE IRA matching contribution on an employee’s entire calendar-year compensation, regardless of when the employee starts or stops contributing during the year. The IRS offered 3 examples in support of its point. Also the IRS stated that an employer can make matching contributions to its SIMPLE IRA:
— on a per-pay-period basis, or
— by the due date of the employer’s tax return (including extensions).