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[Neil Blotske]

Question for anyone out there who is familiar with Simple IRA’s and setup in GP (core payroll only, not advanced).

We started a Simple IRA plan in January, electing the 3% match.  Our payroll clerk (and myself truth be told) wrongly assumed both the Employee Contribution and Employer Match were calculated on gross pay.  In doing some reading today, she discovered, in fact, the “Compensation” amount should be based on gross pay LESS Section 125 cafeteria deductions.  Some reading if interested:
Operating a SIMPLE IRA Plan
SIMPLE IRA Plan FAQs – Compensation

So to the question.  It appears the employee contribution may be able to calculate properly if we use a Method of “Percent of Earnings Wages”.  I say “appears” as I’ve haven’t yet tested this.  

But (there’s always a but, right),

There is no such option for the Benefit/Employer Match?

Any thoughts on this?  It would seem the same Method would be available here also, or am I missing something? 

I’m very new to Payroll in GP as well as Payroll in general, so please eddicate me! 🙂

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Neil Blotske
KT Connections, Inc.
Rapid City SD
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[Charles Allen]

?Is the benefit at the same percentage as the deduction? If so, you could make the benefit 100% of the deduction.?

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Charles Allen
Senior Managing Consultant
BKD Technologies
Houston, TX
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[Joni Finnell]

?Neil:

Since the setup depends on your policy for the match I’ll use our match as an example. Our match is 50% of the employee’s contribution up to 4%. So, our max is 2% of the 4%. Our benefit setup looks like the above. It won’t let me post it in the body of the message. 😎

I hope this helps.

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Joni Finnell
Project Accountant/GP Troubleshooter
Consumer Support Services, Inc.
Newark OH
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[Neil Blotske]

It appeared as though this was the answer, except. . . it doesn’t work.  Here is what I mean:

Since the Simple IRA is calculated off an amount = gross pay – cafeteria deductions, it is necessary to set up an Earnings Code similar to below:

This Earnings Code is then used on the Deduction setup.  Note, the Method used is “Percent of Earnings Wages” and NOT “Percent of Gross Wages”.

This works great for calculating the proper employee deduction.

The issue arises with the Benefit.  As you can see in the setup window below, the Employer Maximum is greyed out.  The reason is, if the Method selected is “Percent of Deduction”, the selected Deduction MUST be based on “Percent of Gross Wages”.   Specifically, from the help menu:

Employer Maximum

Enter the maximum percent the employer will match for the benefit. This field is only available if you selected Percent of Deduction as your calculation method, and if Percent of Gross Wages is selected as the calculation method for the corresponding deduction in the Employee Deduction Maintenance window.

So, it would see GP is incapable of calculating a simple SIMPLE IRA match?

Any other suggestions are greatly appreciated.  We’d prefer to avoid a spreadsheet.

Thank you,

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Neil Blotske
KT Connections, Inc.
Rapid City SD
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[Joni Finnell]

?Neil:

We do not use earnings codes. I think they complicate things. 😎 

When you select the proper taxes in the “TSA Sheltered From” list on the deduction code setup it will take care of calculating the amount of pay that is remaining after Section 125 is deducted from the gross wages. So, your first screen shot of the deduction setup in your original post is correct as long as you select gross wages and enter a percent amount in the “Deduction Tier”.

Once you make that change the employer match on the benefit code will be available. Please keep in mind if you have the benefit “based on” the deduction you will have to use “percent of deduction” not wages. If you are matching a straight 3% then you would use 100% in the benefit tier with 3% employer max.

Thanks

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Joni Finnell
Project Accountant/GP Troubleshooter
Consumer Support Services, Inc.
Newark OH
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[Neil Blotske]

Joni,

First of all, thank you for taking your time to respond, it is very much appreciated.

My understanding of Simple IRA employee deferral and employer match is as follows (assuming 3% deferral and 100% match for simplicity).  Let’s assume also the following paycheck figures:

Gross Pay:           $ 5,000.00
Caf-Flex:              $    200.00 *Sec 125
Caf-Med:             $    500.00 *Sec 125
Fed  Tax:              $    650.00
IRA:
SS:                          $    266.60
MC:                        $      62.35

According to IRS, the IRA employee deferral is based on their compensation.  Compensation is defined as Gross less pre-tax Cafeteria elections.  In the example above, this means the 3% deferral is calculated as:

Compensation: 5000 – 200 – 500 = $4,300. 
Employee deferral = $4,300 x 3% = $129.
Employer match = $129

I don’t see how this could be calculated properly without using an Earnings Code?  We’ve been using our Deduction code for the Simple IRA since the beginning of the year as set up in original post (using Gross Pay) and it is calculating the deferral based on Gross and NOT taking into account the Cafeteria amounts.  In the example above, the IRA deferral with our current setup calculates as:

$5,000 x 3% = $150

I hope I’m missing something obvious here, but am still perplexed as to how we can make this work.

Thank you,

 

 

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Neil Blotske
KT Connections, Inc.
Rapid City SD
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[Joni Finnell]

?Neil:

That is odd. Maybe the problem is in the setup for the Section 125 deductions? It could also be in the Deduction Sequence Setup. That is one that is easy to forget. 😎 All TSA sheltered items should be listed first. We have 401K at the end of our TSA list so all other deductions are considered first in case there is a short pay.

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Joni Finnell
Project Accountant/GP Troubleshooter
Consumer Support Services, Inc.
Newark OH
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[Neil Blotske]

Thought I’d update this, even though the news is bad.

Finally opened a ticket with our partner.   They were unable to determine why the ira calculation couldn’t be done and opened a ticket with GP support.  GP support confirmed the software cannot calculate either the deduction or match properly.  Using the Earnings code appeared to work at first, but unfortunately when using the earnings code the Simple IRA deduction is not able to be sheltered from tax – therefore our Fed tax calculated too high.  System limitation/bug. 

so this gets to be a manual process.  What a disappointment.

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Neil Blotske
KT Connections, Inc.
Rapid City SD
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