As of 1997, employers with no more than 100 employees may set up a savings incentive match plan for employee (SIMPLE). In effect, SIMPLE plans trade off lower annual contribution limits for ease of administration. Thus, they're generally cheaper and easier to operate than other retirement options, but you can't save as much for retirement each year as you can with the other options.

Here are the basic rules:

• A SIMPLE must be the only retirement plan you offer.
• The funding mechanism can be either an IRA or a 401(k) plan.
• The employee may contribute up to $6,000 annually.
• The employer must either match each participating employee's contribution up to 3 percent of the employee's pay or make an across-the-board 2 percent contribution for all employees, regardless of whether they participate in the plan. These are the only permitted contributions — the maximum contribution total for any employee (or yourself) would be $12,000 per year.
• Employees vest immediately in all contributions made to their account, by themselves or the employer.
• Eligible employees are those who received at least $5,000 in compensation during any two preceding years and who are reasonably expected to receive $5,000 in compensation during the year in question.
• In the IRA form, your plan is exempt from all nondiscrimination and top-heavy rules. In the 401(k) form, it is exempt from the special nondiscrimination rules and from the top-heavy rules, but it still must meet regular nondiscrimination and coverage rules.
• Employers may take a deduction for contributions to the employees' accounts.
• There are no reporting requirements imposed on the employer except for a single report to the government when the plan is created (employers do have to notify employees as to account balances, investment performance, etc.).
• A distribution to an employee during the first two years after the plan is created is subject to a 25 percent excise tax. After two years, distributions to anyone under age 59 1/2 is subject to a 10 percent excise tax.
• Upon separation from employment, distributions may be rolled over tax free to an IRA or to another SIMPLE plan.

One of the more interesting aspects of SIMPLE plans is that, although you must offer the plan to all eligible employees, you can still set up the plan even if none of your employees wants to participate. That is not true of other plans. Of course, there are strict rules and heavy fines for business owners who don't properly give employees the option of joining.

If you're interested in setting up a SIMPLE plan, contact anyone who might offer IRAs or 401(k) plans, such as banks, insurance companies, or investment houses.

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