Employee left company in March 2006. Became eligible to defer 1/1/06 but chose not to. Employee did not earn $5000 in 2006. Employer makes 2% nonelective contribution after year-end. Is employer required to make a 2% contribution for this employee?

The employee's Simple Ira must receive the 2% contribution. I assume the employer uses eligibility criteria that include the requirement "employee is reasonably expected to earn $5,000 this year." Whatever the eligibility requirements are in this case, the employee must have met them, since he (she) was ''eligible to defer 1/1/06 but chose not to." I'm not immediately sure of the exact date by which you'd need to have the knowledge that the employee is now NOT reasonably expected to earn at least $5,000----at the latest the date might be by 1/1/06 (12/31 deadline). Your facts don't indicate knowledge of ineligibility had been acquired as of 1/1/06.