A SIMPLE 401(k) plan is a cost effective way for employers with fewer than 100 employees to offer retirement plan benefits to its employees. This type of plan is similar to the Safe Harbor 401(k) plan in that it is not subject to the annual nondiscrimination tests that are applicable to the traditional 401(k) plan and it must provide for employer contributions that are fully vested when made. However, the amount of deferrals that can be contributed in this plan on an individual basis are less than the deferral limits in a Safe Harbor 401(k) plan or traditional 401(k) plan. Employer contribution requirements are also less than those required in a Safe Harbor plan and no other employer contributions can be made to the plan above and beyond the SIMPLE requirements.

The idea behind this type of plan is to ease the administrative burdens on the employer by making the employer contributions easier to understand, not allowing for any other contributions or retirement plans of the employer and making all contributions fully vested. Employers who are exploring this route should give careful consideration to all three choices available under the 401(k) provisions.