n-09-67.pdf

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Part III – Administrative, Procedural and Miscellaneous

Adding Automatic Enrollment to SIMPLE IRA Plans -- Sample Amendment

Notice 2009-67

I. PURPOSE

This notice facilitates automatic enrollment by providing a sample plan
amendment that a prototype sponsor of a SIMPLE IRA plan (using a designated
financial institution) can use in drafting an amendment to add an automatic contribution
arrangement to the SIMPLE IRA plan.

II. BACKGROUND

Section 408(p) of the Internal Revenue Code provides rules for a SIMPLE IRA
plan, which is a simplified tax-favored retirement plan for small employers. Notice 98-4,
1998-1 C.B. 269, provides guidance with respect to SIMPLE IRA plans.

An automatic contribution arrangement is an arrangement under which, in the
absence of an affirmative election by an employee, a default election applies under
which the employee is treated as having elected to have a portion of the employee’s
compensation contributed to a tax-favored retirement plan rather than paid to the
employee in cash. A SIMPLE IRA plan may include an automatic contribution
arrangement. See Notice 2009-66, IRB 2009-39, ___.

III. SAMPLE PLAN AMENDMENT

Sponsor Adoption. A sample plan amendment is provided in the Appendix that a
prototype sponsor of a SIMPLE IRA plan (using a designated financial institution) can
use in drafting an amendment to add an automatic contribution arrangement. Because
the amendment is a sample amendment, prototype sponsors are not required to adopt
the amendment verbatim. In fact, it may be necessary for prototype sponsors to modify
the sample amendment to conform to their SIMPLE IRA plan’s terms and administrative
procedures. Sponsors that amend their prototype SIMPLE IRA plan documents
pursuant to this notice must furnish a copy of the amendment to each adopting
employer, regardless of whether the employer will utilize the automatic contribution
arrangement.

Employer Adoption. An employer that wants to add an automatic contribution
arrangement to its prototype SIMPLE IRA plan (using a designated financial institution)
must adopt the amendment, provided by the prototype sponsor, before the effective
date of the automatic contribution arrangement. The timely adoption of the amendment
must be evidenced by a written document that is signed and dated by the employer and
the designated financial institution.

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Effect on Reliance. The adoption of the sample plan amendment (as modified, if
necessary to conform to the plan’s terms and administrative procedures) in accordance
with the procedures described above will not result in the loss of reliance on a favorable
opinion letter.

IV. MODEL FORMS

The Service expects to issue a revised Form 5305-SIMPLE, Savings Incentive
Match Plan for Employees of Small Employers (SIMPLE) — for Use With a Designated
Financial Institution, that includes an automatic contribution arrangement.

DRAFTING INFORMATION

The principal author of this notice is Roger Kuehnle of the Employee Plans, Tax
Exempt and Government Entities Division. Questions regarding this notice may be sent
via email to RetirementPlanQuestions@irs.gov
.

Appendix
Sample SIMPLE IRA Plan Amendment

Article [ ] Automatic Contribution Arrangement

Section 1. Rules of Application

1.1 If this Article applies, default salary reduction contributions will be made in
accordance with this Article. To the extent that any other provision of the SIMPLE IRA
Plan is inconsistent with the provisions of this Article, the provisions of this Article shall
govern.

1.2 Subject to the limits on salary reduction contributions contained in this SIMPLE IRA
Plan, default salary reduction contributions will only be made for an Eligible Employee
who: (select either a or b)

[ ] a. does not have an affirmative election regarding salary reduction
contributions in effect on the effective date of the Automatic Contribution
Arrangement or on the date the employee first becomes eligible to make salary
reduction contributions, if later.
[ ] b. becomes eligible to make salary reduction contributions on or after the
effective date of the Automatic Contribution Arrangement and who does not have
an affirmative election regarding salary reduction contributions in effect on the
date the employee first becomes eligible to make salary reduction contributions.

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Default salary reduction contributions being made on behalf of an Eligible Employee will
cease as soon as administratively feasible after the Eligible Employee makes an
affirmative election.

1.3 The Default Percentage under the SIMPLE IRA Plan for an Eligible Employee
described in Section 1.2 above
is: (Select either a or b and fill in the blanks.)

[ ] a. Fixed.
The Default Percentage is [ ]%.
[ ] b. Increasing. The initial Default Percentage is [ ]%, and each calendar year,
beginning with the second calendar year that begins after the Default Percentage
first applies to the Eligible Employee, the Default Percentage will increase by [ ]
(insert a number) percentage point(s) until the Default Percentage is [ ]%. (Insert
the highest Default Percentage that will apply.) The increase will be effective
beginning with the first pay period that begins in such calendar year.

1.4 No default salary reduction contributions will be made on an Eligible Employee’s
behalf until after the 60-day election period.

Section 2. Definitions

2.1 An “Automatic Contribution Arrangement” is an arrangement under which, in the
absence of an affirmative election by an Eligible Employee, a certain percentage of
compensation will be withheld from the Eligible Employee’s pay and contributed as a
salary reduction contribution to the SIMPLE IRA established under this SIMPLE IRA
Plan for the Eligible Employee.

2.2 “Default salary reduction contributions” are the salary reduction contributions made
to the SIMPLE IRAs of employees described in Section 1.2 above.

2.3 The “Default Percentage” is the percentage of an employee’s compensation
contributed to the plan as default salary reduction contributions for a calendar year. The
Default Percentage is specified in Section 1.3 above.

Section 3. Modified Notice Requirement

3.1 The notice provided to Eligible Employees immediately prior to the 60-day election
period must include, for employees described in Section 1.2 above, a comprehensive
explanation of the employee's rights and obligations under the Automatic Contribution
Arrangement, written in a manner calculated to be understood by the average employee
described in Section 1.2 above.

3.2 The notice must accurately describe:

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(a) The amount of default salary reduction contributions that will be made on the
Eligible Employee’s behalf in the absence of an affirmative election and when
default salary reduction contributions will start;
(b) The Eligible Employee’s right to elect to have no salary reduction
contributions made on his or her behalf or to have a different amount of salary
reduction contributions made;
(c) How default salary reduction contributions will be invested in the absence of
the Eligible Employee’s investment instructions; and
(d) If not already permitted under the SIMPLE IRA Plan, the additional period
(described in Section 4 below) to make a transfer without cost or penalty from the
SIMPLE IRA established for the Eligible Employee at the designated financial
institution.

Section 4. Modification of Designated Financial Institution Rules

Notwithstanding any limitation on an Eligible Employee’s right to transfer, without cost or
penalty, the balance in his or her SIMPLE IRA maintained at a designated financial
institution to another SIMPLE IRA, an employee described in Section 1.2 above may
request such a transfer during the 60 days immediately following the employee’s first
60-day election period under the Automatic Contribution Arrangement. This period is in
addition to any other periods provided under this SIMPLE IRA Plan, and the transfer
request can apply to the entire balance accrued since default salary reduction
contributions were first made on the employee’s behalf and to the balance attributable
to future contributions, at the employee’s request.

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Section 5. Effective Date

This Article [ ] is effective ______________. (Insert January 1 of the first calendar year
the Automatic Contribution Arrangement applies or the date the SIMPLE IRA Plan is
effective, if later.)

This Article applies only if the effective date is inserted above and the employer and
designated financial institution properly execute the amendment.

___________________________________
Name of Employer

___________________________________
By: Signature Date

___________________________________
Name and title

___________________________________
Name of Financial Institution

___________________________________
By: Signature Date

___________________________________
Name and title