A Savings Incentive Match Plan for Employees—SIMPLE—may be adopted by employers with 100 or fewer employees who earned at least $5,000 during the preceding year. SIMPLE plans may be in the form of an IRA or part of a 401(k) plan. Employers adopting a SIMPLE plan cannot sponsor another retirement plan. There is no limit on the percentage of the salary deferral. An employee may elect to defer up to 100% of his or her compensation, provided the total amount does not exceed the annual deferral limit. The elective deferral limit for SIMPLE Plans $13,500 for 2020 ($13,000 in 2019) . For individuals who will reach age 50 within the applicable year the limit is $16,500 for 2020 ($16,000 in 2019). Additional "catch-up" salary deferral contributions may be made to SIMPLE accounts for participants who have attained the age of 50 by year-end. The catch-up amount is $3,000 for 2020 (same in 2019).

If the SIMPLE plan is structured as an IRA, employees will be permitted to make elective contributions to the IRA, stated as a percentage of compensation, but not to exceed the IRS annual limit. The employer will be required to match such contributions, dollar for dollar, up to 3% of the employee's compensation. An employer may elect a lower match for a year, but not less than 1%, for two out of five years, upon notification of employees within 60 days before the beginning of the year. As an alternative to a matching contribution, the employer may make a non-elective contribution of 2% of compensation (eligible compensation is limited to $285,000 in 2020 ($280,000 in 2019).

SIMPLE plans can also be established as a 401(k) plan. These plans will be deemed to satisfy the nondiscrimination rules for highly compensated employees if the plan satisfies the SIMPLE contribution and "one plan" rules as follows:

• the employer does not maintain any other qualified plan;
• employee deferrals are limited to no more than the IRS annual limit;
• the employer matches employee deferrals up to 3% of compensation or provides non-elective contributions of 2% of compensation;
• no other contributions are made to the plan; and
• all contributions are immediately 100% vested.

Unlike SIMPLE IRA plans, SIMPLE 401(k) plans may use the eligibility rules for qualified defined contribution plans (age 21 and one year of service) and maintain loan programs.

Top heavy rules do not apply to SIMPLE plans; however other rules governing tax-qualified retirement plans do apply.