Form 5304-SIMPLE Savings Incentive Match Plan for ... · 5304-SIMPLE OMB No. 1545-1502 Form (Rev. August 2005) Do not file with the Internal Department of the Treasury Revenue Service

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INSTRUCTIONS TO PRINTERSFORM 5304-SIMPLE, PAGE 1 OF 6MARGINS; TOP 13mm (1/2"), CENTER SIDES. PRINTS: HEAD TO HEADPAPER: WHITE WRITING, SUB. 20. INK: BLACKFLAT SIZE: 216mm (8-1/2") x 279mm (11")PERFORATE: None

OMB No. 1545-15025304-SIMPLEForm

(Rev. August 2005) Do not filewith the InternalRevenue ServiceDepartment of the Treasury

Internal Revenue Service

establishes the following SIMPLE

IRA plan under section 408(p) of the Internal Revenue Code and pursuant to the instructions contained in this form.

Form 5304-SIMPLE (Rev. 8-2005)

Name of Employer

Cat. No. 23377WFor Paperwork Reduction Act Notice, see page 6.

Article I—Employee Eligibility Requirements (complete applicable box(es) and blanks—see instructions)General Eligibility Requirements. The Employer agrees to permit salary reduction contributions to be made in each calendar year to theSIMPLE IRA established by each employee who meets the following requirements (select either 1a or 1b):

Full Eligibility. All employees are eligible.

Limited Eligibility. Eligibility is limited to employees who are described in both (i) and (ii) below:

Current compensation. Employees who are reasonably expected to receive at least $ in compensation (notto exceed $5,000) for the calendar year.

Prior compensation. Employees who have received at least $ in compensation (not to exceed $5,000)during any calendar year(s) (insert 0, 1, or 2) preceding the calendar year.

Excludable Employees.

Article II—Salary Reduction Agreements (complete the box and blank, if applicable—see instructions)Salary Reduction Election. An eligible employee may make an election to have his or her compensation for each pay period reduced. Thetotal amount of the reduction in the employee’s compensation for a calendar year cannot exceed the applicable amount for that year.

Timing of Salary Reduction Elections

For a calendar year, an eligible employee may make or modify a salary reduction election during the 60-day period immediately precedingJanuary 1 of that year. However, for the year in which the employee becomes eligible to make salary reduction contributions, the periodduring which the employee may make or modify the election is a 60-day period that includes either the date the employee becomeseligible or the day before.

In addition to the election periods in 2a, eligible employees may make salary reduction elections or modify prior elections ,. If the Employer chooses

this option, insert a period or periods (for example, semi-annually, quarterly, monthly, or daily) that will apply uniformly to all eligibleemployees.

No salary reduction election may apply to compensation that an employee received, or had a right to immediately receive, beforeexecution of the salary reduction election.An employee may terminate a salary reduction election at any time during the calendar year. If this box is checked, an employee whoterminates a salary reduction election not in accordance with 2b may not resume salary reduction contributions during the calendar year.

Article III—Contributions (complete the blank, if applicable—see instructions)Salary Reduction Contributions. The amount by which the employee agrees to reduce his or her compensation will be contributed by theEmployer to the employee’s SIMPLE IRA.

Matching ContributionsFor each calendar year, the Employer will contribute a matching contribution to each eligible employee’s SIMPLE IRA equal to theemployee’s salary reduction contributions up to a limit of 3% of the employee’s compensation for the calendar year.

The Employer may reduce the 3% limit for the calendar year in (i) only if:

(1) The limit is not reduced below 1%; (2) The limit is not reduced for more than 2 calendar years during the 5-year period ending withthe calendar year the reduction is effective; and (3) Each employee is notified of the reduced limit within a reasonable period of timebefore the employees’ 60-day election period for the calendar year (described in Article II, item 2a).

Nonelective ContributionsFor any calendar year, instead of making matching contributions, the Employer may make nonelective contributions equal to 2% ofcompensation for the calendar year to the SIMPLE IRA of each eligible employee who has at least $ , (not morethan $5,000) in compensation for the calendar year. No more than $210,000* in compensation can be taken into account indetermining the nonelective contribution for each eligible employee.

For any calendar year, the Employer may make 2% nonelective contributions instead of matching contributions only if:

This notification is provided within a reasonable period of time before the employees’ 60-day election period for the calendar year(described in Article II, item 2a).

Time and Manner of ContributionsThe Employer will make the salary reduction contributions (described in 1 above) for each eligible employee to the SIMPLE IRA established at the financialinstitution selected by that employee no later than 30 days after the end of the month in which the money is withheld from the employee’s pay. See instructions.

The Employer will make the matching or nonelective contributions (described in 2a and 2b above) for each eligible employee to theSIMPLE IRA established at the financial institution selected by that employee no later than the due date for filing the Employer’s tax return,including extensions, for the taxable year that includes the last day of the calendar year for which the contributions are made.

a

b

1

(i)

(ii)

2

1

2

a

b

c

d

Each eligible employee is notified that a 2% nonelective contribution will be made instead of a matching contribution; and

1

2(i)

(ii)

(i)

(ii)

a

(1)

(2)

3a

b

b

The Employer elects to exclude employees covered under a collective bargaining agreement for which retirement benefits were the subjectof good faith bargaining. Note: This box is deemed checked if the Employer maintains a qualified plan covering only such employees.

* This is the amount for 2005. For later years, the limit may be increased for cost-of-living adjustments.The IRS announces the increase, if any, in a news release, in theInternal Revenue Bulletin, and on the IRS’s internet website at www.irs.gov.

Savings Incentive Match Plan forEmployees of Small Employers (SIMPLE)—Notfor Use With a Designated Financial Institution




Page 2Form 5304-SIMPLE (Rev. 8-2005)

Article IV—Other Requirements and ProvisionsContributions in General. The Employer will make no contributions to the SIMPLE IRAs other than salary reduction contributions(described in Article III, item 1) and matching or nonelective contributions (described in Article III, items 2a and 2b).

Vesting Requirements. All contributions made under this SIMPLE IRA plan are fully vested and nonforfeitable.

No Withdrawal Restrictions. The Employer may not require the employee to retain any portion of the contributions in his or her SIMPLEIRA or otherwise impose any withdrawal restrictions.

Selection of IRA Trustee. The employer must permit each eligible employee to select the financial institution that will serve as the trustee,custodian, or issuer of the SIMPLE IRA to which the employer will make all contributions on behalf of that employee.

Amendments To This SIMPLE IRA Plan. This SIMPLE IRA plan may not be amended except to modify the entries inserted in the blanksor boxes provided in Articles I, II, III, VI, and VII.

An amount withdrawn from the SIMPLE IRA is generally includible in gross income. However, a SIMPLE IRA balance may be rolled over ortransferred on a tax-free basis to another IRA designed solely to hold funds under a SIMPLE IRA plan. In addition, an individual may rollover or transfer his or her SIMPLE IRA balance to any IRA after a 2-year period has expired since the individual first participated in anySIMPLE IRA plan of the Employer. Any rollover or transfer must comply with the requirements under section 408.

If an individual withdraws an amount from a SIMPLE IRA during the 2-year period beginning when the individual first participated in anySIMPLE IRA plan of the Employer and the amount is subject to the additional tax on early distributions under section 72(t), this additionaltax is increased from 10% to 25%.

Article V—DefinitionsCompensation

General Definition of Compensation. Compensation means the sum of the wages, tips, and other compensation from the Employer subjectto federal income tax withholding (as described in section 6051(a)(3)), the amounts paid for domestic service in a private home, local collegeclub, or local chapter of a college fraternity or sorority, and the employee’s salary reduction contributions made under this plan, and, ifapplicable, elective deferrals under a section 401(k) plan, a SARSEP, or a section 403(b) annuity contract and compensation deferred under asection 457 plan required to be reported by the Employer on Form W-2 (as described in section 6051(a)(8)).

Compensation for Self-Employed Individuals. For self-employed individuals, compensation means the net earnings fromself-employment determined under section 1402(a), without regard to section 1402(c)(6), prior to subtracting any contributions madepursuant to this plan on behalf of the individual.

Employee. Employee means a common-law employee of the Employer. The term employee also includes a self-employed individual and aleased employee described in section 414(n) but does not include a nonresident alien who received no earned income from the Employerthat constitutes income from sources within the United States.

Eligible Employee. An eligible employee means an employee who satisfies the conditions in Article I, item 1 and is not excluded underArticle I, item 2.

Article VI—Procedures for Withdrawal ( The employer will provide each employee with the procedures forwithdrawals of contr ibutions received by the financial institution selected by that employee, and that financialinstitution’s name and address (by attaching that information or inserting it in the space below) unless: (1) thatfinancial institution’s procedures are unavailable, or (2) that financial institution provides the procedures directly tothe employee. See Employee Notification on page 5. )

1

2

a

b

3

4

5

Effects Of Withdrawals and Rollovers6

1

a

b

2

3

SIMPLE IRA. A SIMPLE IRA is an individual retirement account described in section 408(a), or an individual retirement annuity describedin section 408(b), to which the only contributions that can be made are contributions under a SIMPLE IRA plan and rollovers or transfersfrom another SIMPLE IRA.

4

Article VII—Effective Date

This SIMPLE IRA plan is effective . Seeinstructions.

Name of Employer By:

Name and title

Signature Date

Address of Employer

* * * * *






Model Notification to Eligible Employees

I. Opportunity to Participate in the SIMPLE IRA PlanYou are eligible to make salary reduction contributions to the SIMPLE IRAplan. This notice and the attached summary description provide you with information that you should consider before you decidewhether to start, continue, or change your salary reduction agreement.

II. Employer Contribution ElectionFor the calendar year, the employer elects to contribute to your SIMPLE IRA (employer must select either (1), (2), or (3)):

(1) A matching contribution equal to your salary reduction contributions up to a limit of 3% of your compensation for the year;

(2) A matching contribution equal to your salary reduction contributions up to a limit of % (employer must insert anumber from 1 to 3 and is subject to certain restrictions) of your compensation for the year; or

(3) A nonelective contribution equal to 2% of your compensation for the year (limited to $210,000*) if you are an employee whomakes at least $ (employer must insert an amount that is $5,000 or less) in compensation for the year.

III. Administrative ProceduresTo start or change your salary reduction contributions, you must complete the salary reduction agreement and return it to

(employer should designate a place or

individual) by (employer should insert a date that is not less than 60 days after notice is given).

Model Salary Reduction Agreement

I. Salary Reduction ElectionSubject to the requirements of the SIMPLE IRA plan of (name of employer)I authorize % or $ (which equals % of my current rate of pay) to be withheld from my pay for eachpay period and contributed to my SIMPLE IRA as a salary reduction contribution.

II. Maximum Salary ReductionI understand that the total amount of my salary reduction contributions in any calendar year cannot exceed the applicable amount for

that year. See instructions.

III. Date Salary Reduction BeginsI understand that my salary reduction contributions will start as soon as permitted under the SIMPLE IRA plan and as soon asadministratively feasible or, if later, . (Fill in the date you want the salary reduction contributions to begin.The date must be after you sign this agreement.)

This salary reduction agreement replaces any earlier agreement and will remain in effect as long as I remain an eligible employeeunder the SIMPLE IRA plan or until I provide my employer with a request to end my salary reduction contributions or provide a newsalary reduction agreement as permitted under this SIMPLE IRA plan.

Signature of employee

V. Duration of Election

Date

IV. Employee Selection of Financial Institution

I select the following financial institution to serve as the trustee, custodian, or issuer of my SIMPLE IRA.IV. Employee Selection of Financial Institution

Name of financial institution

Address of financial institution

SIMPLE IRA account name and number

I understand that I must establish a SIMPLE IRA to receive any contributions made on my behalf under this SIMPLE IRA plan. If theinformation regarding my SIMPLE IRA is incomplete when I first submit my salary reduction agreement, I realize that it must becompleted by the date contributions must be made under the SIMPLE IRA plan. If I fail to update my agreement to provide thisinformation by that date, I understand that my employer may select a financial institution for my SIMPLE IRA.

You must select the financial institution that will serve as the trustee, custodian, or issuer of your SIMPLE IRA and notify youremployer of your selection.


* This is the amount for 2005. For later years, the limit may be increased for cost-of-living adjustments. The IRS announces the increase, if any, in a news release, inthe Internal Revenue Bulletin, and on the IRS website at www.irs.gov.





Section references are to the InternalRevenue Code unless otherwise noted.

General Instructions

Purpose of FormForm 5304-SIMPLE is a model SavingsIncentive Match Plan for Employees ofSmall Employers (SIMPLE) plandocument that an employer may use toestablish a SIMPLE IRA plan describedin section 408(p), under which eacheligible employee is permitted to selectthe financial institution for his or herSIMPLE IRA.

Which Employers MayEstablish and Maintain aSIMPLE IRA Plan?To establish and maintain a SIMPLE IRAplan, you must meet both of thefollowing requirements:

1. Last calendar year, you had nomore than 100 employees (includingself-employed individuals) who earned$5,000 or more in compensation fromyou during the year. If you have aSIMPLE IRA plan but later exceed this100-employee limit, you will be treatedas meeting the limit for the 2 yearsfollowing the calendar year in which youlast satisfied the limit.

2. You do not maintain during any partof the calendar year another qualifiedplan with respect to which contributionsare made, or benefits are accrued, forservice in the calendar year. For thispurpose, a qualified plan (defined insection 219(g)(5)) includes a qualifiedpension plan, a profit-sharing plan, astock bonus plan, a qualified annuityplan, a tax-sheltered annuity plan, and asimplified employee pension (SEP) plan.A qualified plan that only coversemployees covered under a collectivebargaining agreement for whichretirement benefits were the subject ofgood faith bargaining is disregarded ifthese employees are excluded from

Certain related employers (trades orbusinesses under common control) mustbe treated as a single employer forpurposes of the SIMPLE IRArequirements. These are: (1) a controlledgroup of corporations under section414(b); (2) a partnership or soleproprietorship under common controlunder section 414(c); or (3) an affiliatedservice group under section 414(m). Inaddition, if you have leased employeesrequired to be treated as your ownemployees under the rules of section414(n), then you must count all suchleased employees for the requirementslisted above.

What is a SIMPLE IRA Plan?A SIMPLE IRA plan is a writtenarrangement that provides you and youremployees with an easy way to makecontributions to provide retirementincome for your employees. Under aSIMPLE IRA plan, employees maychoose whether to make salaryreduction contributions to the SIMPLEIRA plan rather than receiving theseamounts as part of their regularcompensation. In addition, you willcontribute matching or nonelectivecontributions on behalf of eligibleemployees (see Employee EligibilityRequirements below and Contributionson page 5). All contributions under thisplan will be deposited into a SIMPLEindividual retirement account or annuityestablished for each eligible employeewith the financial institution selected byhim or her.

When To Use Form5304-SIMPLEA SIMPLE IRA plan may be establishedby using this Model Form or any otherdocument that satisfies the statutoryrequirements.

1. You want to require that all SIMPLEIRA plan contributions initially go to afinancial institution designated by you.That is, you do not want to permit eachof your eligible employees to choose afinancial institution that will initiallyreceive contributions. Instead, use Form5305-SIMPLE, Savings Incentive MatchPlan for Employees of Small Employers(SIMPLE)—for Use With a DesignatedFinancial Institution.

2. You want employees who arenonresident aliens receiving no earnedincome from you that constitutes incomefrom sources within the United States tobe eligible under this plan; or

Completing Form5304-SIMPLEPages 1 and 2 of Form 5304-SIMPLEcontain the operative provisions of yourSIMPLE IRA plan. This SIMPLE IRA planis considered adopted when you havecompleted all applicable boxes andblanks and it has been executed by you.

The SIMPLE IRA plan is a legaldocument with important taxconsequences for you and youremployees. You may want to consultwith your attorney or tax advisor beforeadopting this plan.

Employee EligibilityRequirements (Article I)Each year for which this SIMPLE IRAplan is effective, you must permit salaryreduction contributions to be made byall of your employees who arereasonably expected to receive at least$5,000 in compensation from you duringthe year, and who received at least$5,000 in compensation from you in any2 preceding years. However, you canexpand the group of employees who areeligible to participate in the SIMPLE IRAplan by completing the options providedin Article I, items 1a and 1b. To choosefull eligibility, check the box in Article I,item 1a. Alternatively, to choose limitedeligibility, check the box in Article I, item1b, and then insert “$5,000” or a lowercompensation amount (including zero)and “2” or a lower number of years ofservice in the blanks in (i) and (ii) ofArticle I, item 1b.

3. You want to establish a SIMPLE401(k) plan.

Do not use Form 5304-SIMPLE if:

Salary ReductionAgreements (Article II)As indicated in Article II, item 1, a salaryreduction agreement permits an eligibleemployee to make a salary reductionelection to have his or her compensationfor each pay period reduced by apercentage (expressed as a percentageor dollar amount). The total amount of

In addition, you can exclude fromparticipation those employees coveredunder a collective bargaining agreementfor which retirement benefits were thesubject of good faith bargaining. Youmay do this by checking the box inArticle I, item 2. Under certaincircumstances, these employees mustbe excluded. See Which Employers MayEstablish and Maintain a SIMPLE IRAPlan? above.

These instructions are designed toassist in the establishment andadministration of the SIMPLE IRA plan.They are not intended to supersede anyprovision in the SIMPLE IRA plan.

Do not file Form 5304-SIMPLE withthe IRS. Instead, keep it with yourrecords.

For more information, see Pub. 560,Retirement Plans for Small Business(SEP, SIMPLE, and Qualified Plans), andPub. 590, Individual RetirementArrangements (IRAs).Note. If you used the March 2002version of Form 5304-SIMPLE toestablish a model Savings IncentiveMatch Plan, you are not required to usethis version of the form.

participating in the SIMPLE IRA plan. Ifthe failure to continue to satisfy the100-employee limit or the one-plan ruledescribed in 1 and 2 above is due to anacquisition or similar transactioninvolving your business, special rulesapply. Consult your tax advisor to findout if you can still maintain the plan afterthe transaction.




Timing of Salary ReductionElectionsFor any calendar year, an eligibleemployee may make or modify a salaryreduction election during the 60-dayperiod immediately preceding January 1of that year. However, for the year inwhich the employee becomes eligible tomake salary reduction contributions, theperiod during which the employee maymake or modify the election is a 60-dayperiod that includes either the date theemployee becomes eligible or the daybefore.

You can extend the 60-day electionperiods to provide additionalopportunities for eligible employees tomake or modify salary reductionelections using the blank in Article II,item 2b. For example, you can providethat eligible employees may make newsalary reduction elections or modify priorelections for any calendar quarter duringthe 30 days before that quarter.

You may use the Model SalaryReduction Agreement on page 3 toenable eligible employees to make ormodify salary reduction elections.

Employees must be permitted toterminate their salary reduction electionsat any time. They may resume salaryreduction contributions for the year ifpermitted under Article II, item 2b.However, by checking the box in ArticleII, item 2d, you may prohibit anemployee who terminates a salaryreduction election outside the normalelection cycle from resuming salaryreduction contributions during theremainder of the calendar year.

Only contributions described below maybe made to this SIMPLE IRA plan. Noadditional contributions may be made.

Salary Reduction ContributionsAs indicated in Article III, item 1, salaryreduction contributions consist of theamount by which the employee agreesto reduce his or her compensation. Youmust contribute the salary reduction

In general, you must contribute amatching contribution to each eligibleemployee’s SIMPLE IRA equal to theemployee’s salary reductioncontributions. This matching contributioncannot exceed 3% of the employee’scompensation. See Definition ofCompensation, below.

You may reduce this 3% limit to alower percentage, but not lower than1%. You cannot lower the 3% limit formore than 2 calendar years out of the5-year period ending with the calendaryear the reduction is effective.Note: If any year in the 5-year per ioddescr ibed above is a year before youfirst established any SIMPLE IRA plan,you will be treated as making a 3%matching contr ibution for that year forpurposes of determining when you mayreduce the employer matchingcontr ibution.

To elect this option, you must notifythe employees of the reduced limitwithin a reasonable period of time beforethe applicable 60-day election periodsfor the year. See Timing of SalaryReduction Elections above.

Nonelective ContributionsInstead of making a matchingcontribution, you may, for any year,make a nonelective contribution equal to2% of compensation for each eligibleemployee who has at least $5,000 incompensation for the year. Nonelectivecontributions may not be based on morethan $210,000* of compensation.

To elect to make nonelectivecontributions, you must notify employeeswithin a reasonable period of time beforethe applicable 60-day election periodsfor such year. See Timing of SalaryReduction Elections above.

Effective Date (Article VII)Insert in Article VII, the date you wantthe provisions of the SIMPLE IRA plan tobecome effective. You must insertJanuary 1 of the applicable year unlessthis is the first year for which you areadopting any SIMPLE IRA plan. If this isthe first year for which you are adoptinga SIMPLE IRA plan, you may insert anydate between January 1 and October 1,inclusive of the applicable year.

Additional Information


Contributions (Article III)

Timing of Salary ReductionContributionsThe employer must make the salaryreduction contributions to the financialinstitution selected by each eligibleemployee for his or her SIMPLE IRA nolater than the 30th day of the monthfollowing the month in which theamounts would otherwise have beenpayable to the employee in cash.

Definition of Compensation“Compensation” means the amountdescribed in section 6051(a)(3) (wages,tips, and other compensation from theemployer subject to federal income taxwithholding under section 3401(a)), and,amounts paid for domestic service in aprivate home, local college club, or localchapter of a college fraternity or sorority.Usually, this is the amount shown in box1 of Form W-2, Wage and TaxStatement. For further information, seePub. 15, Circular E, Employer’s TaxGuide. Compensation also includes thesalary reduction contributions madeunder this plan, and, if applicable,compensation deferred under a section457 plan. In determining an employee’scompensation for prior years, theemployee’s elective deferrals under asection 401(k) plan, a SARSEP, or asection 403(b) annuity contract are alsoincluded in the employee’scompensation.

For self-employed individuals,compensation means the net earningsfrom self-employment determined undersection 1402(a), without regard to section1402(c)(6), prior to subtracting anycontributions made pursuant to thisSIMPLE IRA plan on behalf of theindividual.

the reduction in the employee’scompensation cannot exceed theapplicable amount for any calendar year.The applicable amount is $10,000 for2005. After 2005, the $10,000 amountmay be increased for cost-of-livingadjustments. In the case of an eligibleemployee who is 50 or older by the endof the calendar year, the above limitationis increased by $2,000 for 2005 and by$2,500 for 2006. After 2006, the $2,500amount may be increased forcost-of-living adjustments.

Note: Insert “$5,000” in Article III, item2b(i) to impose the $5,000 compensationrequirement. You may expand the groupof employees who are eligible fornonelective contr ibutions by inserting acompensation amount lower than$5,000.

The Department of Labor hasindicated that most SIMPLE IRA plansare also subject to Title I of theEmployee Retirement Income SecurityAct of 1974 (ERISA). Under Departmentof Labor regulations at 29 CFR2510.3-102, salary reductioncontributions must be made to eachparticipant’s SIMPLE IRA as of theearliest date on which thosecontributions can reasonably besegregated from the employer’s generalassets, but in no event later than the30-day deadline described above.

Employee NotificationYou must notify each eligible employeeprior to the employee’s 60-day electionperiod described above that he or shecan make or change salary reductionelections and select the financialinstitution that will serve as the trustee,

Matching Contributions

contributions to the financial institutionselected by each eligible employee.





You can use the Model Notification toEligible Employees on page 3 to satisfythese employee notification requirementsfor this SIMPLE IRA plan. A SummaryDescription must also be provided toeligible employees at this time. Thissummary description requirement maybe satisfied by providing a completedcopy of pages 1 and 2 of Form5304-SIMPLE (including the informationdescribed in Article V—Procedures forWithdrawal).

If the financial institution’s name,address, or withdrawal procedures arenot available at the time the employeemust be given the summary description,you must provide the summarydescription without this information. Inthat case, you will have reasonablecause for not including this informationin the summary description, but only ifyou ensure that it is provided to theemployee as soon as administrativelyfeasible.

Reporting RequirementsYou are not required to file any annualinformation returns for your SIMPLE IRAplan, such as Forms 5500 or 5500-EZ.However, you must report to the IRSwhich eligible employees are activeparticipants in the SIMPLE IRA plan andthe amount of your employees’ salaryreduction contributions to the SIMPLEIRA plan on Form W-2. Thesecontributions are subject to socialsecurity, Medicare, railroad retirement,and federal unemployment tax.

Deducting ContributionsContributions to this SIMPLE IRA planare deductible in your tax yearcontaining the end of the calendar yearfor which the contributions are made.

Summary DescriptionEach year the SIMPLE IRA plan is ineffect, the financial institution for theSIMPLE IRA of each eligible employeemust provide the employer theinformation described in section408(l)(2)(B). This requirement may besatisfied by providing the employer acurrent copy of Form 5304-SIMPLE(including instructions) together with thefinancial institution’s procedures forwithdrawals from SIMPLE IRAsestablished at that financial institution,including the financial institution’s nameand address. The summary descriptionmust be received by the employer insufficient time to comply with theEmployee Notification requirementsabove.

Contributions will be treated as madefor a particular tax year if they are madefor that year and are made by the duedate (including extensions) of yourincome tax return for that year.

There is a penalty of $50 per dayimposed on the financial institution foreach failure to provide the summarydescription described above. However, ifthe failure was due to reasonable cause,the penalty will not be imposed.

If you fail to provide the employeenotification (including the summarydescription) described above, you will beliable for a penalty of $50 per day untilthe notification is provided. If you canshow that the failure was due toreasonable cause, the penalty will not beimposed.

Printed on recycled paper

Paperwork Reduction Act Notice. Youare not required to provide theinformation requested on a form that issubject to the Paperwork Reduction Actunless the form displays a valid OMBcontrol number. Books or recordsrelating to a form or its instructions mustbe retained as long as their contentsmay become material in theadministration of any Internal Revenuelaw. Generally, tax returns and returninformation are confidential, as requiredby section 6103.

The time needed to complete thisform will vary depending on individualcircumstances. The estimated averagetime is:Recordkeeping 3 hr., 38 min.Learning about thelaw or the form 2 hr., 26 min.Preparing the form 47 min.If you have comments concerning theaccuracy of these time estimates orsuggestions for making this formsimpler, we would be happy to hearfrom you. You can write to the InternalRevenue Service, Tax ProductsCoordinating Committee,SE:W:CAR:MP:T:T:SP, 1111 ConstitutionAve. NW, IR-6406, Washington, DC20224. Do not send this form to thisaddress. Instead, keep it with yourrecords.

2. A matching contribution equal toyour employees’ salary reductioncontributions subject to a percentagelimit that is between 1 and 3% of theircompensation; or

3. A nonelective contribution equal to2% of your employees’ compensation.

1. A matching contribution equal toyour employees’ salary reductioncontributions up to a limit of 3% of theircompensation;

custodian, or issuer of the employee’sSIMPLE IRA. In this notification, youmust indicate whether you will provide:

Simple IRA

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1

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rules apply if your company exceeds the 100-

employee limitation as a result of an

acquisition. (See your tax advisor for details.)

Additionally, your employer contribution to the

plan can change with your company’s needs.

Personal benefits

A SIMPLE IRA is a convenient way to meet

your personal retirement needs. As a

participant in your company’s SIMPLE IRA

plan, you’ll share, with your employees, one of

the most comprehensive retirement plans

available today. Plan features include:

Convenience

Payroll deduction makes saving easy and hassle-free.

Tax-deferred growth

Your contributions to the plan and the growth ofyour investments are tax-deferred until withdrawal.

Tax savings today

A SIMPLE IRA can function as part of a salary-

reduction program. Your taxable income is

reduced by the amount of your contributions.

A powerful retirement vehicle

Participants may contribute up to $9,000 to a

SIMPLE IRA for 2004; and $10,000 for 2005

and later years.

For participants who are age 50 or over by the

end of the year, these amounts are increased to

$10,500 for 2004, $12,000 for 2005, and

$12,500 for 2006 and later years.

Employers also make contributions to the

employees’ accounts – see below.

A wide range of investment choices

You may select from the wide variety of

investments we offer – stocks, bonds, U.S.

Government and agency issues, mutual funds,

certificates of deposit and other investments.

A flexible benefit

Flexible employer contributions range from a

1% to a 3% match of employees’ contributions,

or you can contribute 2% of compensation for

all eligible employees, regardless of their salary

deferrals under the plan.

3

WHICH ContributionMethod is Right forYOUR Business?

3% matching contribution vs. 2% non-electivecontributionWhich of these contribution methods is right for

you depends on you and your business. If you’re

primarily interested in encouraging your

employees to save for their own retirement, you

may want to consider the matching option. If you’d

prefer to use this benefit to reward all of your

eligible employees each year, you may want to opt

for the non-elective contribution method.

3% matching contribution

If you choose this option, you’re required to

match each participant’s contributions dollar-

for-dollar—up to 3% of their compensation

each year. You can generally reduce your

match to as little as 1% of each participant’s

compensation in any two years of a five-year

period, including the current plan year.

Keep in mind that this method is based on

matching your employee’s contributions. So if an

employee doesn’t contribute, you don’t contribute

to his or her SIMPLE IRA account either.

To illustrate the differences between these two

contribution methods, consider the hypothetical

contribution requirements on the next page for an

employee making $30,000 a year. Your financial

advisor can help you estimate the annual

company contribution that would be required for

your SIMPLE IRA plan. See your attorney or tax

advisor with any questions.

2% non-elective contribution

If you prefer, you can choose to contribute 2% of

each eligible employee’s compensation each year

up to a maximum of $4,100.* If you elect this

contribution method, you’ll need to make a

contribution to all eligible employees regardless of

whether they contribute to their SIMPLE IRAs.

*For 2004, maximum compensation on whichnon-elective contributions can be based is $205,000. Forself-employed individuals, compensation means earnedincome.

4

4

Comparing employer contribution methods

If you choose the

3% matching contribution

If you choose the

2% non-elective contribution

The employee contributes 5% of

salary ($30,000) or $1,500.

AYou match the employee’s

contribution on a dollar-for

dollar basis, up to 3% of the

employee’s compensation:

(3% x $30,000 = $900).

In any two years in a five-year

period, you have the flexibility to

reduce the match to 1%:

(1% x $30,000 = $300).

You contribute 2% of the


(2% x $30,000 = $600).

The employee contributes 2.5% of

salary ($30,000) or $750.

BYou match the employee

contributions on a dollar-for

dollar basis up to 3% of

compensation. Since the employee

chose to contribute only 2.5% of

compensation, which is $750,

you would only have to match

$750. In any two years in a five-

year period, you could reduce the

match to 1%, or $300.

You contribute 2% of the


(2% x $30,000 = $600).

The employee decides not to

contribute.

CYou’re not required to contribute

because there’s no salary reduction

contribution for you to match.

You’re required to

contribute 2% of the


(2% x $30,000 = $600).

5

EMPLOYERInstructions for Setting up aSIMPLE IRA PLANImportantIf you want to change any of the plan rules, you must

complete and sign a new Form 5304-SIMPLE and

designate the effective date of the change on the form.

After you have started a SIMPLE IRA plan, the new

Form 5304-SIMPLE containing the changes must be

effective as of January 1.

For 2004, the maximum annual salary deferral allowed

in SIMPLE IRA plans is $9,000. That amount will

increase to $10,000 for 2005 and later years. For

eligible employees who will be age 50 or older before

the end of the applicable calendar year, these limits are

increased to $10,500 for 2004, $12,000 for 2005, and

$12,500 for 2006 and later years.

Setting up a SIMPLE IRA really is simple.Just follow the steps below.1. Read carefully the enclosed materials about

SIMPLE IRA plans, including the Form5304-SIMPLE used to establish your SIMPLEIRA plan and the instructions andinformation included with the form.Establishing a SIMPLE IRA plan involvescertain legal and financial obligations for theemployer. Consult your attorney or taxadvisor if you have any questions about thenature of these obligations or about howmaintaining a SIMPLE IRA plan will affectyour business or your tax situation.

2. Complete pages 1 and 2 of Form 5304-SIMPLE to select eligibility provisions foryour SIMPLE IRA plan. The instructions forthe form explain your options concerningeligibility and contributions. Article VI of theform requires that you provide eachemployee with information about theprocedures for withdrawals of contributionsreceived by the financial institution that he orshe has selected and the financial institution’sname and address. However, this isn’trequired if the financial institution’sprocedures aren’t available or if the financialinstitution provides the procedures directly tothe employee. Normally, the financialinstitution will inform the employee directlyabout its withdrawal procedures. Designate

the effective date and complete the signatureblock in Article VII of the form. You maystart a new SIMPLE IRA plan effective onany date from January 1 to October 1.

3. Part of the process for establishing a SIMPLEIRA plan involves notifying all eligibleemployees. Complete the model Notificationto Eligible Employees with the correctinformation for your plan (from yourcompleted Form 5304-SIMPLE). Distribute acopy of the completed notice to each eligibleemployee. Generally (except for newSIMPLE IRA plans) the notice must bedistributed at least 60 days before the start ofthe calendar year. In addition to the notice,you must give each eligible employee asummary description of the plan. To do so,photocopy the completed (and signed) Form5304-SIMPLE, including instructions; attachthese pages to the back of the documententitled “For Employees—Your SIMPLEIRA” to create a summary description. Makeenough copies of the summary description togive one copy to each eligible employee alongwith the Notification to Eligible Employees.

You must repeat this process each year bydistributing a notice and summarydescription to each eligible employee at least60 days before the start of a calendar year.

4. Each eligible employee who wishes to makesalary reduction contributions to his or herSIMPLE IRA should complete a SalaryReduction Agreement. This form indicateshow much the employee wants to contributeout of his or her pay to his or her SIMPLEIRA account. Use the model SalaryReduction Agreement included in the Form5304-SIMPLE for this purpose.

5. Each eligible employee who elects toparticipate must also complete a Self-DirectedIRA Application to establish a Piper JaffraySIMPLE IRA, or the appropriate applicationand/or other forms for the SIMPLE IRA ofhis or her choice.

If an eligible employee establishes a SIMPLEIRA with another financial institution, theemployee will have to give you the necessaryinformation so that you can sendcontributions on the employee’s behalf to thetrustee, custodian, or other issuer of theemployee’s IRA, along with any identifying

6

account information needed in order forcontributions to be properly credited to theemployee’s account.

If you make non-elective employercontributions under the SIMPLE IRA plan, anIRA must be established by each eligibleemployee, even those who don’t choose tomake salary reduction contributions. If theemployee doesn’t complete the necessarypaperwork, you are entitled to complete theforms to open a SIMPLE IRA for the employee.

6. As the employer, you have certain importantresponsibilities relating to the operation of yourSIMPLE IRA plan. These include the following:

Determining whether you meet therequirements to be an eligibleemployer to make contributions to aSIMPLE IRA plan for any particularcalendar year.

Determining which employees areeligible to participate in your SIMPLEIRA plan for any calendar year andensuring that all required notices,summary descriptions, and otherinformation are provided to sucheligible employees within the timeframes specified under the SIMPLEIRA plan rules.

Determining that salary reductioncontributions by eligible employees arewithin all limitations applicable to suchcontributions, transferring suchcontributions to each participant’sSIMPLE IRA within the time limitsprovided by law, and determining andmaking employer contributions in theamounts and by the times required byapplicable legal rules.

Properly reporting salary reductioncontributions by eligible employees tothe IRS on Form W-2.

These requirements (and otherresponsibilities of the employer) are describedin more detail in the “Employer Answers toSmall-Business Retirement Plan Needs,”beginning on page 7 of this booklet, and inIRS Form 5304-SIMPLE and itsaccompanying instructions.

By establishing a SIMPLE IRA plan andexecuting the Form 5304-SIMPLE or other

document for your SIMPLE IRA plan, you(the employer) agree to indemnify and holdharmless Piper Jaffray as custodian from andagainst any losses, costs, or liabilities arisingout of your failure to carry out yourresponsibilities as employer or otherwisearising out of the operation of your SIMPLEIRA plan, except for losses, costs, or liabilitiesarising directly out of the gross negligence orwillful misconduct of Piper Jaffray.

7. Check to be sure that all forms have beenproperly completed. Send completed forms andcheck to your Piper Jaffray financial advisor.

7

EMPLOYER Answersto Small-BusinessRETIREMENTPLAN NEEDSSaving For Retirement

It’s not easy, but we all need to take itseriously. For small-business owners, taking ona retirement plan can be costly and time-consuming. That’s why there is tremendousinterest in the SIMPLE IRA plan, designed forsmall businesses.

The following will answer your questions aboutSIMPLE IRAs and help you decide whether aPiper Jaffray SIMPLE IRA plan is right for yourbusiness.

Q What is a SIMPLE IRA plan?

A A SIMPLE IRA plan is an employer planand a series of IRAs (one for each eligibleemployee) that receive contributions by, orfor, employees.

The employer part of the SIMPLE IRA plan isset up when you complete and sign a short IRSform—Form 5304-SIMPLE. Piper Jaffray willact as custodian of SIMPLE IRAs foremployees who choose to open their SIMPLEIRAs with us.

An employee SIMPLE IRA is very much likeany other IRA, except with highercontribution limits. The employee SIMPLEIRA can be established using the Piper JaffraySelf-Directed IRA materials. Alternatively,employees must be allowed to open a SIMPLEIRA with a different financial institution, inwhich case the employee will complete thematerials for the SIMPLE IRA that theemployee chooses.

Q Which employers may have SIMPLE IRAplans?

A SIMPLE IRA plans are only for small-business employers. This is defined as anemployer with 100 or fewer employees in theprevious calendar year, who received $5,000or more in total pay from the employer.Related employers are grouped together

when testing whether the 100-employee limitis satisfied. All employees who meet theincome requirement must be counted againstthis limit, even those not eligible toparticipate in the employer’s SIMPLE IRAplan. Also, certain “leased employees” (theseare employees of another business whoprovide services to the employer) must betreated as employees of the employer forSIMPLE IRA plan purposes.

If you exceed the 100-employee limit, youmay continue to operate your SIMPLE IRAplan for two years. After that, you mustdiscontinue SIMPLE IRA plan contributionsunless you go back below the 100-employeelevel. Special rules apply if your companyexceeds the 100-employee limitation as aresult of an acquisition. (See your taxadvisor for details.)

An employer may have a SIMPLE IRA planonly if it has no other retirement plan at anytime when the SIMPLE IRA plan is inoperation. “Retirement plans” for thispurpose include 401(k), profit sharing,pension, simplified employee pension (SEP),and other kinds of retirement plans thatreceive special tax benefits. (However, aseparate plan for collective bargainingemployees is allowed.)

Q Which employees participate in the SIMPLEIRA?

A Generally speaking, all of the employer’semployees must participate in the SIMPLEIRA plan. If related employers are groupedtogether when deciding whether theemployers are eligible to have a SIMPLEIRA plan (see above), then all employees ofall the related employers must participate.However, you may exclude:

an employee who did not receive at least$5,000 in pay from you in at least two priorcalendar years (not necessarily consecutiveyears).

an employee who is not reasonably expectedto receive at least $5,000 in pay from youfor the current calendar year.

union-represented employees, provided thatthere was good faith bargaining over theissue of retirement benefits. (The Form5304-SIMPLE has a place to indicate

8

whether this group of employees will beincluded or excluded from your SIMPLEIRA plan.)

Q How do contributions to the SIMPLE IRAwork?

A Two kinds of contributions are permitted:(i) employee contributions, and(ii) employer contributions, which may beeither matching or non-elective contributions.

Employee Contributions. Each eligibleemployee may elect to have a percentage ofhis or her pay contributed by the employerto the employee’s SIMPLE IRA, as long asthe amount does not exceed the applicableamount for a calendar year. The applicableamount is $9,000 for 2004, and $10,000 for2005 and later years. In the case of aneligible employee who will be age 50 orolder before the end of the applicablecalendar year, these amounts are increasedto $10,500 for 2004, $12,000 for 2005, and$12,500 for 2006 and later years.Thereafter, these limits will be increased forfuture cost-of-living increases. Eligibleemployees elect the desired level of pay tocontribute on a Salary ReductionAgreement. A model Salary ReductionAgreement is included in Form 5304-SIMPLE. Salary reductions may be madeonly from pay the employee earns aftersigning the Salary Reduction Agreement.

Employee salary reduction contributionsmust be transferred to the trustee, custodian,or other issuer of each participatingemployee’s IRA as soon as you canreasonably do so. The outside deadline is the30th day of the month following the monthwhen the employee would have received thepay amount except for the salary reduction.However, if you can transfer the amount tothe participants’ IRAs earlier, you must doso under Department of Labor rules.

Employer Contributions. One of the bigbenefits of a SIMPLE IRA plan is that you(the employer) have a great deal offlexibility on the type of contributions youmake to the SIMPLE IRA plan.

First, you may make matchingcontributions, so that only employees whoactually contribute from their own payreceive an employer contribution. With a

SIMPLE IRA plan, there are no high-lowtests as there are with 401(k) plans or salaryreduction SEP plans, so the fact that low-paid employees decide not to contributedoes not limit savings and matchingopportunities for other employees.

Alternatively, you may make a non-electivecontribution for each employee who meetsyour plan’s eligibility requirements, whetherthe employee is contributing from his or herown pay or not.

Matching Contributions. If you choosematching contributions, you must contribute$1 for each $1 the employee contributes, upto a cap of 3% of the employee’s pay for thecalendar year.

You may elect a lower percentage (not lowerthan 1% of pay) for the cap, but only in twoyears out of any five-year period. In otherwords, if you have already elected a lowercap in two years out of the five years endingwith the current calendar year, the matchingcontribution cap for the current year must be3% of pay. If you have used a lower cap inonly one year, or in no years in the five yearsending with the current year, you may elect alower cap for the current calendar year.However, employees must be notified of thelower cap before the start of the year. (See“What do I have to tell employees about theplan?” on page 9 of this booklet.)

Non-elective Contributions. Instead ofmatching contributions, you may make anon-elective contribution for each employeewho meets your plan’s eligibilityrequirements. However, you may elect inthe Form 5304-SIMPLE to exclude anemployee who earned less than a certainamount from you for the year (may notexceed $5,000). The non-electivecontribution must be 2% of each eligibleemployee’s pay for the year. For thispurpose only, pay is subject to an IRS limit.The limit for 2004 is $205,000; this amountis indexed for future cost-of-living changes.

If you want to use the non-electivecontributions approach, you must notifyeligible employees before the start of theyear. (See “What do I have to tellemployees about the plan?” on page 9.)

9

Employer matching or non-electivecontributions for an employee must betransferred to the employee’s SIMPLE IRAno later than the due date (including anyextensions) for filing the employer’s federalincome tax return for the year.

Q How are contributions to SIMPLE IRAsinvested?

A As part of the enrollment process, eacheligible employee establishes a SIMPLE IRAusing the Piper Jaffray Self-Directed IRAmaterials, or the materials provided by theSIMPLE IRA vendor of the employee’schoosing. Contributions on behalf of eachemployee participating in the SIMPLE IRAplan are added to his or her SIMPLE IRA.

If the employee has chosen to open a PiperJaffray SIMPLE IRA, contributions areinvested as the employee determines fromamong the wide variety of investments weoffer. If the employee has opened his or herSIMPLE IRA through another financialinstitution, contributions will be invested inthe investment options available for thatSIMPLE IRA. Investment options availablethrough any SIMPLE IRA are described inthe materials given to each employee uponopening his or her IRA.

For Piper Jaffray Self-Directed IRAs, eachemployee is responsible for deciding how toinvest contributions to his or her SIMPLE IRA.

One advantage of a SIMPLE IRA plan isthat interest, dividends, other earnings andgains on the investments held in anemployee’s SIMPLE IRA compound withoutfederal income tax. This can mean greaterreturns than with a taxable investmentearning the same return, even after incometaxes on withdrawals are paid.

Of course, with most investments there isthe possibility of fluctuations in rate ofreturn or in the value of underlying assets.Therefore, no particular rate of return canbe predicted or guaranteed.

Q Can employees transfer their SIMPLE IRAto another IRA?

A Yes, under the SIMPLE IRA rules anemployee may elect to transfer to anotherIRA account. However, for two years afterthe first contribution to his or her SIMPLEIRA under your SIMPLE IRA plan, theemployee may only transfer to anotherSIMPLE IRA. After the end of this two-yearperiod, the employee may transfer amountsfrom a SIMPLE IRA to another SIMPLEIRA or to a Traditional or Roth IRA.However, a transfer of a SIMPLE IRA to aRoth IRA is subject to tax.

In order to transfer, the employee must set up aSIMPLE IRA (or, after two years, a Traditionalor Roth IRA) with the desired IRA sponsor,and notify the existing trustee or custodian inwriting of the employee’s election.

Normal fees and charges (including anycustodial account termination fees and anyredemption charges, contingent deferredsales charges, or loads charged by a mutualfund investment, as described in itsprospectus) may be charged.

Q Can employees withdraw money from theirSIMPLE IRA?

A Yes, employees may withdraw money fromtheir SIMPLE IRA at any time.Withdrawals are discussed in the disclosurestatement in the Piper Jaffray Self-DirectedIRA materials given to each employee. If theemployee chooses to establish a SIMPLEIRA with a different financial institution, thewithdrawal rules should be summarized inthe materials distributed by that financialinstitution.

There’s one important difference betweenSIMPLE IRAs and Traditional IRAs.Withdrawals from a Traditional IRA beforeage 59½ are subject to a 10% penalty tax inaddition to regular income taxes, unless anexception to the penalty applies. Forwithdrawals from a SIMPLE IRA during thefirst two years after the employee startedparticipating in the employer’s SIMPLE plan,the penalty is 25% of the amount withdrawnrather than the normal penalty of 10%.

10

Q What do I have to tell employees about the plan?

A Each year that you operate a SIMPLE IRAplan, you must give all eligible employees:(i) a notice of the plan’s terms, and(ii) the opportunity to choose to make salaryreduction contributions.

The notice must state the employer’s choiceof contribution options for the calendaryear, including, if you choose matchingcontributions, the percentage of pay cap forthat calendar year (3% of pay as the cap or,if allowed, a lower percentage). The noticealso must inform eligible employees thatthey’re required to select and open aSIMPLE IRA with the financial institutionof their choice, or else the employer willestablish a SIMPLE IRA for them.

The notice must be given at least 60 daysbefore the start of the calendar year (in otherwords, on or before November 2 precedingthe start of the year). At the same time, youmust give each eligible employee a copy of asummary description of the SIMPLE IRAplan. This is done by giving each eligibleemployee a copy of the short pamphlet titled“For Your Employees—SIMPLE IRA: ASummary Description” (pages 11 through 14of this booklet) to which you should attach aphotocopy of the completed Form 5304-SIMPLE you used to establish your SIMPLEplan, and the form’s instructions.

Failure to meet these notice requirementsmakes you liable for a penalty of $50 per dayfor each day during which the failurecontinues. The IRS can waive the penalty ifyou can demonstrate that the failure wasdue to reasonable cause.

Q What are the advantages of a SIMPLE IRAfor a small business?

A SIMPLE IRAs were designed to be easy forsmall-business employers to operate. ThePiper Jaffray SIMPLE IRA package containsall the forms and materials you will need tostart your SIMPLE IRA plan.

There are no complex IRS tests or rules thatyou must follow when operating yourSIMPLE IRA plan. For example, the high-low tests normally applicable to salaryreduction contributions by employees in a401(k) plan or salary reduction SEP do not

apply. Also, the top-heavy plan rules do notapply. Since contributions are held inSIMPLE IRAs established by the participatingemployees, there’s no Form 5500 AnnualReport to file. All that you, the employer,must do is indicate on the employee’s FormW-2 whether the employee was a participantin your SIMPLE IRA plan during the yearand the amount of the employee’s salaryreduction contributions for the year.

Q How do I set up a SIMPLE IRA?

A In general, to set up a SIMPLE IRA plan,merely follow the “Employer Instructionsfor Setting Up a SIMPLE IRA Plan” onpages 5 and 6.

You may choose the effective date for yournew SIMPLE IRA plan, which may be anyday up to October 1st of the applicable year.Special rules apply if you are a newemployer or if you have previouslymaintained a SIMPLE IRA plan.

The SIMPLE IRA plan must be in effect bythe first date on which a contribution isdeposited into an employee’s IRA.

Usually the notice to eligible employeesabout the SIMPLE IRA plan must be givenby November 2nd of the preceding calendaryear. However, for the first year in whichthe employer establishes its SIMPLE IRAplan, the 60-day period may be any 60 daysas long as this includes the effective date ofthe SIMPLE IRA plan or the day before. Forexample, if you establish a SIMPLE IRAplan effective July 1, 2004, the 60-dayelection period must include either June 30or July 1, 2004, and you must give theeligible employees their notices in advanceof the start of the 60-day period.

Q Where can I get additional information?

A Please read the instructions to Form 5304-SIMPLE for more information. Also, theIRS has issued some questions and answersin Notice 98-4 (available by contacting theIRS). However, this Notice has not beenupdated to reflect the latest changes in thelaw, such as the increased contributionlimits for employee contributions.

For help with a SIMPLE IRA plan for yourbusiness, please call your Piper Jaffrayfinancial advisor.

11

For YourEMPLOYEES–SIMPLE IRA:A Summary DescriptionA. Introduction

Your employer offers you a Savings IncentiveMatch Plan for Employees (SIMPLE) as atax-favored method of saving for yourretirement. Under the SIMPLE IRA, youremployer will make certain contributions,which may be either matching contributions(matching your own savings under the Plan upto a limit) or non-elective contributions.Savings contributions by you, plus employercontributions on your behalf, are added to anIRA established in your name for purposes ofthe SIMPLE IRA plan.

The following information is a notification ofyour plan participation options and adescription of the SIMPLE IRA plan.

This notification is in two parts. The first partconsists of the following pages of informationabout SIMPLE IRA plans and the relatedSIMPLE IRA. The second part is a copy of IRSForm 5304-SIMPLE as completed by youremployer to choose certain optional provisionsfor the employer’s SIMPLE IRA plan, and theinstructions to the Form. This form is provided toyou in order to indicate the particular provisionsthat apply to your employer’s plan.

B. What is a SIMPLE IRA Plan?

A SIMPLE IRA plan is a written arrangementthat provides employers with a simplified wayto make contributions to provide retirementincome for their employees. Under a SIMPLEIRA plan, employees may choose whether tomake salary reduction contributions to theSIMPLE IRA plan rather than receiving theseamounts as part of their regular compensation.In addition, your employer will contributematching or non-elective contributions on behalfof eligible employees. (See “Employee EligibilityRequirements” and “Contributions” below.)

All contributions under this plan will bedeposited into a SIMPLE IRA established by

each eligible employee with a financialinstitution selected by the employee.

C. Which employers may establish and maintaina SIMPLE IRA Plan?

To establish and maintain a SIMPLE IRA planfor a particular calendar year, an employermust meet both of the following requirements:

1. In the preceding calendar year, the employerhad no more than 100 employees (includingself-employed individuals) who earned$5,000 or more in compensation from theemployer during the year. If the employerhas a SIMPLE IRA plan but later exceedsthis 100-employee limit, the employer willbe treated as meeting the limit for the twocalendar years following the calendar year inwhich the employer last satisfied the limit. Ifthe failure to continue to satisfy the 100-employee limit is due to an acquisition orsimilar transaction involving the business,special rules apply.

2. The employer doesn’t maintain, during anypart of the calendar year, another qualifiedplan with respect to which contributions aremade, or benefits are accrued. For thispurpose, a qualified plan includes a qualified401(k) plan, a pension plan, a profit-sharingplan, a stock bonus plan, a qualified annuityplan, a tax-sheltered annuity plan, and asimplified employee pension (SEP) plan.

Certain related employers (trades orbusinesses under common control) must betreated as a single employer for purposes ofthe SIMPLE IRA plan requirements. Inaddition, certain leased employees arerequired to be treated as employees of thebusiness and must be counted for therequirements listed above.

D. Employee eligibility requirements (Article I)

Each year for which this SIMPLE IRA plan iseffective, your employer (the “sponsoringemployer”) must permit salary reductioncontributions to be made by all employees whoare reasonably expected to receive at least$5,000 in compensation from the sponsoringemployer during the year, and who received atleast $5,000 in compensation from thesponsoring employer in any two precedingyears. Your employer can expand the group ofemployees who are eligible to participate in this

12

SIMPLE IRA plan to include some or all ofthose earning under $5,000. In addition, youremployer may elect to exclude union employeesif there was collective bargaining overretirement benefits between the employer andthe union representing the employees. Todetermine which eligibility options youremployer has chosen, consult Article I of theattached Form 5304-SIMPLE.

E. Salary reduction agreements (Article II)

A Salary Reduction Agreement permits you toelect to have your pre-tax compensation foreach pay period reduced an amount (expressedas a percentage or dollar amount). The totalamount of the reduction in your compensationcannot exceed $9,000 for 2004 and $10,000for 2005 and later years. After 2005, themaximum amount will be adjusted for cost-of-living increases. If you are age 50 or over bythe end of the applicable year, you may elect tohave your pre-tax compensation reduced by anadditional amount of $1,500 for 2004, $2,000for 2005, and $2,500 for 2006 and later years.After 2006, the maximum additional amountwill be adjusted for cost-of-living increases.

To make a salary reduction election, simplycomplete the Salary Reduction Agreement formprovided by your employer. Also, you use theSalary Reduction Agreement to specify thename and address of the financial institutionmaintaining your SIMPLE IRA account andaccount identifying information so thatcontributions to your account can beforwarded and credited to your IRA correctly.The Salary Reduction Agreement must becompleted and returned to your employerwithin the required time frames.

F. Timing of salary reduction elections

For a calendar year, you may make or modify asalary reduction election during the 60-day periodimmediately preceding January 1 of that year.However, for the year in which you becomeeligible to make salary reduction contributions,the period during which you may make or modifythe election is a 60-day period that includes eitherthe date you become eligible or the day before.For example, if your employer starts its SIMPLEIRA plan effective July 1 of a year and youbecome eligible on that day, your 60-day salaryreduction election period must include either June30 or July 1. In this example, the earliest possible

60-day period would be May 2 to June 30, andthe latest possible 60-day period would be July 1to August 29. Your employer may enlarge the 60-day election period or provide additionalopportunities during the year for you to make,cancel, or change your salary reduction election.Refer to Article II, Item 2b of the attached Form5304-SIMPLE to determine any additionalmodification periods available to you.

You may terminate your salary reductionelection at any time. However, if you terminateyour election outside of the normal electioncycle, your employer has the option to prohibityou from resuming salary reduction electionsduring the remainder of the calendar year.Consult Article II, item 2d of the attached Form5304-SIMPLE to determine if your employerhas chosen this option.

G. Contributions (Article III)

Only contributions described below may bemade to this SIMPLE IRA plan. No additionalcontributions may be made.

1. Salary reduction contributions

Salary reduction contributions consist of theamount by which you agree to reduce your pre-tax compensation. Your employer mustcontribute the salary reduction contributions tothe financial institution that you have selectedfor your SIMPLE IRA.

2. Employer contributions

Your employer must make either matchingcontributions or non-elective contributions toyour SIMPLE IRA, as provided below.

a. Matching contributions

In general, your employer must make amatching contribution to your SIMPLE IRAequal to your salary reduction contributions.However, this matching contribution cannotexceed 3% of your compensation. See“Definition of compensation” below.

Your employer may elect to reduce the 3%limit to a lower percentage, but not lowerthan 1%. This reduction cannot be made formore than two out of five years, and youmust be notified of any reduced limit within areasonable period of time before the 60-dayelection period for the year.

13

b. Non-elective contributions

Instead of making a matching contribution,your employer may, for any year, make anon-elective contribution equal to 2% ofcompensation for each eligible employee whohas at least $5,000 in compensation for theyear. (Your employer may impose a lowercompensation requirement, or no requirementat all. Refer to Article III, Item 2(b)(i) of theattached Form 5304-SIMPLE to determineany income requirements.) Non-electivecontributions may not be based on more than$205,000 of compensation.

Again, your employer must notify you within areasonable period of time before the applicable60-day election period for such a year.

H. Other important information about yourSIMPLE IRA

1. Timing of salary reduction contributions

Under the Internal Revenue Code, youremployer must make the salary reductioncontributions to the financial institutionselected by each eligible employee for his or herSIMPLE IRA no later than the 30th day of themonth following that month in which theamounts would otherwise have been payable tothe employee in cash. The Department of Laborhas an additional rule under which salaryreduction contributions must be made to thefinancial institution maintaining an employee’sSIMPLE IRA by the earliest date on whichthose contributions can reasonably besegregated from the employer’s general assets,but in no event later than the 30-day deadlinedescribed above.

2. Definition of compensation (Article V)

“Compensation” means total compensation(the amount of total wages, tips, and othercompensation from the employer subject tofederal income tax withholding). Usually, this isthe amount shown in box 1 of Form W-2,Wage and Tax Statement.

Compensation also includes the salaryreduction contributions made under this plan,and, if applicable, compensation deferred undera section 457 plan. In determining anemployee’s compensation for prior years, theemployee’s elective deferrals under a section401(k) plan, a SARSEP, or a section 403(b)

annuity contract or custodial account are alsoincluded in the employee’s compensation.

For self-employed individuals, compensationmeans the net earnings from self-employmentdetermined under Internal Revenue Codesection 1402(a), without regard to section1402(c)(6), prior to subtracting anycontributions made pursuant to this SIMPLEIRA plan on behalf of the individual.

3. Employee notification

Your employer must notify you that you canmake or change salary reduction elections priorto the 60-day election period described above.In this notification, your employer mustindicate whether it will provide:

a. A matching contribution equal to yoursalary reduction contributions up to a limitof 3% of your compensation;

b. A matching contribution equal to yoursalary reduction contributions subject to apercentage limit that is between 1% and 3%of your compensation; or

c. A non-elective contribution equal to 2% ofyour compensation (including any incomerequirements).

4. Reporting requirements

You are not required to report your SIMPLEIRA contributions to the IRS. Instead, youremployer reports your contribution amountand your active participant status in theSIMPLE IRA plan on IRS Form W-2. Whileyour contributions are made before federalincome tax, they are subject to social security,medicare, railroad retirement, and federalunemployment tax, as applicable.

5. Establishing your SIMPLE IRA

As part of your participation in this SIMPLEIRA plan, you must set up a SIMPLE IRA withthe financial institution of your choice. Simplycomplete the SIMPLE IRA application (and anyother required documents) provided by thefinancial institution that you have chosen toestablish your SIMPLE IRA.

All contributions are sent to your SIMPLE IRA.Investments are selected by you from theinvestment options available under your chosenSIMPLE IRA. Please read the disclosurestatement provided by the financial institution

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for important information about your SIMPLEIRA, and before investing read a copy of theprospectus or other explanatory informationfor each investment option you’re interested infor a description of the investment objectivesand policies, and applicable fees and charges.

6. Transfers

You may transfer all or part of the balance inyour SIMPLE IRA with your current financialinstitution to another SIMPLE IRA at any time.You simply have to give proper directions tothe current financial institution, including thename and address of the successor IRA andtransfer instructions. Normal fees (such astermination or transfer fees) and anyredemption or other charges applicable to themutual fund shares (as described in theapplicable prospectus) will be charged.

For the first two years after your SIMPLE IRAis established, you may transfer only to anotherSIMPLE IRA. The two-year period commenceson the day a contribution is first made to yourSIMPLE IRA by your employer. After the endof this two-year period, you may transferamounts from a SIMPLE IRA to anotherSIMPLE IRA or to a Traditional or Roth IRA.However, transfers from a SIMPLE IRA to aRoth IRA are subject to tax.

7. Procedures for withdrawals

Each year the financial institution will notifyyou (or provide your employer) of theprocedures for withdrawing amounts fromyour SIMPLE IRA, including the institution’sname and address.

Form 1077A (12/03) Since 1895. Member SIPC and NYSE.

Documents

Form 5304-SIMPLE Savings Incentive Match Plan for ... · 5304-SIMPLE OMB No. 1545-1502 Form (Rev. August 2005) Do not file with the Internal Department of the Treasury Revenue Service