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originally posted by: FamCore
So I have a sibling who is a Financial Advisor, and one of my best friends who is a CPA for a college, and he does audits of companies for their 401K plans. I have discussed this hypothetical situation with both of them (among other people I am friends with), and the general consensus is that it doesn't sound like the retirement plans are being managed "by the book".
Every year, the employer matches the 3% the employee contributed to their 401K plan, but not until January of the next year (all at once). Again, hypothetically, if they were to leave their current job in October, under this system the employee would not be receiving the matching contribution this year, even though 3% of their salary had gone towards their 401K.
SIMPLE 401(k) SIMPLE is an acronym for Savings Incentive Match Plan for Employees of Small Employers. These types of 401(k)s suit firms with a maximum of 100 employees who earn at least $5,000 a year. SIMPLE 401(k)s also require immediate, full vesting of company contributions, but companies with SIMPLE 401(k)s cannot offer other retirement programs. The rule requires the company to make either a matching or a non-elective contribution each year, and limits how much it can contribute. Matching contributions cannot exceed 3 percent of an employee's salary, while non-elective contributions have a 2-percent ceiling. Should a company's headcount grow beyond 100 employees after it has maintained a SIMPLE 401(k) plan for at least a year, it qualifies for a grace period during which the IRS views its employment level as meeting the 100-count requirement.