Section 2. Definitions

2.1 “Compensation” means, for purposes of Sections 2.2, 3.1 and 3.2 of this article, the sum of the wages, tips, and other compensation from the Employer subject to federal income tax withholding (as described in Code section 6051(a)(3)) and the employee’s salary reduction contributions made under this or any other Code section 401(k) plan, and, if applicable, elective deferrals under a Code section 408(p) SIMPLE IRA Plan, a SARSEP, or a Code section 403(b) annuity contract and compensation deferred under a Code section 457 plan, required to be reported by the Employer on Form W-2 (as described in section 6051(a)(8)). Compensation also includes amounts paid for domestic service (as described in Code section 3401(a)(3)). For selfemployed individuals, compensation means net earnings from self-employment determined under Code section 1402(a) prior to subtracting any contributions made under this Plan on behalf

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of the individual. The provisions of the Plan implementing the limit on compensation under Code section 401(a)(17) apply to the compensation under Section 3 of this article.

2.2A An Eligible Employer means, with respect to any Year, an employer that had no more than 100 employees who received at least $5,000 of compensation from the Employer for the preceding Year.

(Note to reviewer: For taxable years beginning after December 31, 2023, the following alternate definition applies:)

2.2B An Eligible Employer means, with respect to any Year, an employer that had no more than 25 employees who received at least $5,000 of compensation from the Employer for the preceding Year, and for the 3-taxable year period preceding the first plan year of this SIMPLE 401(k), the employer has neither established nor maintained a qualified plan under section 401(a) of the Code, a section 403(a) annuity plan or a section 403(b) under which contributions were made or benefits were accrued for substantially the same employees under this SIMPLE 401(k).

(Note to reviewer: For purposes of determining the number of employees who received at least $5,000 of compensation for the preceding year, see Q&A B-1 of Notice 98-4, 1998-1 C.B. 269. For this purpose, all employees employed at any time during the calendar year are taken into account, regardless of whether they are eligible to participate in this SIMPLE 401(k) (including employees excludable under the rules of section 410(b)(3) or who have not met the plan's minimum eligibility requirements, as well as self-employed individuals described in section 401(c)(1) who received earned income from the employer during the year).)

(Note to reviewer: For purposes of determining whether an employer has no more than 25 employees who received at least $5,000 of compensation for the preceding year, there generally is a 2-year grace period. Thus, if an employer that has no more than 25 employees increases the number of employees to more than 25, the employer will still be treated as having 25 employees for two years following the last year the employer had no more than 25 employees (unless the increase in the employer’s number of employees was due to an acquisition, disposition, or similar transaction involving the eligible employer).)

2.3 In applying the preceding sentence, all employees of controlled groups of corporations under Code section 414(b), all employees of trades or businesses (whether incorporated or not) under common control under Code section 414(c), all employees of affiliated service groups under Code section 414(m), and leased employees required to be treated as the Employer’s employees under Code section 414(n), are taken into account.

2.4 An Eligible Employer that elects to have the 401(k) SIMPLE Provisions apply to the Plan and that fails to be an Eligible Employer for any subsequent Year, is treated as an Eligible Employer for the 2 Years following the last Year the Employer was an Eligible Employer. If the failure is due to any acquisition, disposition, or similar transaction involving an Eligible

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Employer, the preceding sentence applies only if the provisions of Code section 410(b)(6)(C)(i) are satisfied.

2.5 “Eligible Employee” means, for purposes of the 401(k) SIMPLE Provisions, any employee who is entitled to make Elective Deferrals under the terms of the Plan.

2.6 “Year” means the calendar year.