1. The employer must notify each employee prior to the employee's 60 day election period of the employee's option to participate in a salary reduction agreement or to modify an existing one.

2. The employer must notify each employee of its intention to either make a matching contribution of 3% of compensation (or 1% if available) or a 2% nonelective contribution.

3. The notice must include the summary description as provided by the trustee of the SIMPLE IRA.

4. The notice above must disclose an employee's ability to select the financial institution that will serve as the trustee of the employee's SIMPLE IRA and to which that employee's contributions will be remitted.

As a general rule, each employee must have the right to designate a financial institution that will serve as trustee as indicated above. In the case of a larger employer this requirement can create a significant administrative burden. Consider an employer with 60 or more eligible employees. It is possible that 60 or more separate checks would have to be prepared if each employee elected a different trustee. To avoid this burden, the employer may require that all contributions for the employees be made to a specific financial institution if the following requirements are met:

1. The employer and the financial institution agree that the financial institution will be a "designated financial institution" under section 408(p)(7) for the SIMPLE plan;

2. The financial institution agrees that, if a participant so requests, the participant's balance will be transferred without cost or penalty to another SIMPLE IRA at a financial institution selected by the participant; and

3. Each participant is given written notification describing the procedures under which, if a participant so requests, the participant's balance will be transferred without cost or penalty to another SIMPLE IRA.

It appears that certain financial institutions may not be eligible as a "designated financial institution" if their investment products cannot comply with the transfer requirements in #2 above. For example, front or back loaded mutual funds, insurance company variable or fixed annuities, certificates of deposit, and essentially any investment that potentially could create a penalty when transferred to another investment. To avoid open ended employee transfers, the employer may limit the time during which an employee can transfer his or her balance. Question and answer J-2 in IRS Notice 97-6 states in part "...A participant will be deemed to have been given a reasonable period of time in which to transfer his or her balance without cost or penalty if, for each calender year, the participant has until the end of the 60-day period described in Q&A E-1 to request to transfer, without coat or penalty, his or her balance attributable to SIMPLE plan contributions for the calendar year following that 60-day period."

The 60-day period referred to is the same 60-day period employees have to make their salary deferral election. It also is apparent that the request to transfer funds refers only to plan contributions for the coming year, not any existing balance from prior years. Monthly transfers of the employees' contributions will satisfy these requirements.