You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plans. A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4. However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules in that discussion if the plan meets the conditions listed below.

1. Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $6,500 for 2001. (For 2002, the contribution limit increases to $7,000 and participants who are age 50 or over can make a catch-up contribution of up to $500.)
2. You must make either:
1. Matching contributions up to 3% of compensation for the year, or
2. Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year.
3. No other contributions can be made to the trust.
4. No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan of the employer on behalf of any employee eligible to participate in the SIMPLE 401(k) plan.
5. The employee's rights to any contributions are nonforfeitable.

No more than $170,000 ($200,000 for 2002) of the employee's compensation can be taken into account in figuring salary reduction contributions, matching contributions, and nonelective contributions.

Employee notification. The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. See Notification Requirement in this chapter.

More Information on SIMPLE 401(k) Plans

If you need more help to set up and maintain SIMPLE 401(k) plans, see Revenue Procedure 97-9 in Cumulative Bulletin 1997-1. This revenue procedure provides a model amendment you can use to adopt a plan with SIMPLE 401(k) provisions. This model amendment provides guidance to plan sponsors for incorporating 401(k) SIMPLE provisions in plans containing cash or deferred arrangements.

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