SIMPLE IRAs; Eligible employers: Excludable employees.--The IRS has updated guidance governing the establishment and maintenance of SIMPLE IRAs. The guidance reflects: the issuance of Form 5304-SIMPLE, DOL plan asset regulations defining when contributions become plan assets, and technical corrections made by P.L. 105-34 (Taxpayer Relief Act of 1997). The notice also explains the instances when an employer may make SIMPLE IRA contributions while still maintaining a qualified plan and clarifies the rules relating to the exclusion of employees from SIMPLE IRA eligibility. Rev. Proc. 97-6 is modified and superseded. Back references: 8516 and 8575 .

Notice 98-4 is scheduled for publication in issue 1998-2 of the Internal Revenue Bulletin on January 12, 1998. Notice 98-4 clarifies the questions and answers pertaining to savings incentive match plans for employees of small employees (SIMPLE IRAs) described in 408(p) of the Internal Revenue Code that were set forth in Notice 97-6, 1997-2 I.R.B. 26.

This notice modifies and supersedes Notice 97-6, 1997-2 I.R.B. 26, relating to SIMPLE IRA Plans described in §408(p) of the Internal Revenue Code. The questions and answers contained in this notice reflect technical corrections made by the Taxpayer Relief Act of 1997, Pub. L. 105-34 ("TRA 97"). This notice also amends the answers to certain questions in Notice 97-6 in order to reflect the issuance of Form 5304-SIMPLE (Not Subject to the Designated Financial Institution Rules) and provides a transition period for the use of Form 5305-SIMPLE (for Use With a Designated Financial Institution) for a SIMPLE IRA Plan that does not use a designated financial institution.

Section 1421 of the Small Business Job Protection Act of 1996, Pub. L. 104-188 ("SBJPA") established a simplified tax-favored retirement plan for small employers (a "SIMPLE IRA Plan") under §408(p) of the Code. Contributions under a SIMPLE IRA Plan are made to individual retirement accounts or annuities ("SIMPLE IRAs") that are established pursuant to the SIMPLE IRA Plan adopted by the employer.

Section 1601(d)(1) of TRA 97 amended §1421 of SBJPA, making technical changes to the statutory requirements for SIMPLE IRA Plans.

Notice 97-6 was issued on December 23, 1996, and provided guidance, in the form of questions and answers, on SIMPLE IRA Plans.

On October 31, 1996, the Internal Revenue Service issued Form 5305-SIMPLE, a model form that may be used by an employer to establish a SIMPLE IRA Plan with a designated financial institution, and on December 30, 1996, the Service issued 5304-SIMPLE, a model form that may be used by an employer to establish a SIMPLE IRA Plan without using a designated financial institution. Notice 97-6 contained instructions for modifying Form 5305-SIMPLE for an employer that did not want to use a designated financial institution but that wanted to use a Service-approved model form to establish a SIMPLE IRA Plan. Form 5304-SIMPLE is now available for this purpose.

On November 25, 1997, the Department of Labor ("DOL") issued a final rule, consistent with the statements in Q&A G-5 of Notice 97-6, amending 29 CFR 2510.3-102, relating to the definition of "plan assets" under Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), to harmonize those Title I rules with the rules for salary reduction contributions to SIMPLE IRA Plans under §408(p) of the Code.

This notice modifies Q&As B-3, C-1 and H-2 to reflect technical corrections made by TRA 97; Q&A G-5 to reflect the amendment to the DOL plan asset regulations; and Q&As E-4, G-1, H-1 and K-3 to reflect the issuance of Form 5304-SIMPLE. A new Q&A, K-4, is added to provide a transition period for employers using Form 5305-SIMPLE as modified in accordance with Notice 97-6 for a SIMPLE IRA Plan that does not use a designated financial institution. In addition, this notice makes certain stylistic changes to the Q&As as published in Notice 97-6, including substituting the term "SIMPLE IRA Plan" for "SIMPLE plan."

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This notice modifies and supersedes Notice 97-6.

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-1502.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collection of information in this notice is in the sections headed "EMPLOYEE ELECTIONS" and "EMPLOYER ADMINISTRATIVE AND NOTIFICATION REQUIREMENTS." This information is required to assure compliance with the new provisions of the Small Business Job Protection Act of 1996. The collection of information is required to obtain a benefit. The likely respondents are individuals, businesses or other for-profit institutions, and not-for-profit institutions.

The estimated total annual reporting burden is 75,000 hours. The estimated annual burden per recordkeeper is 15 minutes. The estimated number of respondents is 300,000. The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

The principal author of this notice is Roger Kuehnle of the Employee Plans Division. For further information regarding this notice, please contact the Employee Plans Division's taxpayer assistance telephone service at (202) 622-6074/6075 (not toll-free numbers), between the hours of 1:30 and 3:30 p.m. Eastern Time, Monday through Thursday.