The ASPA ERISA Outline Book states that eligible employees must ACTUALLY DEFER for the SARSEP plan to remain qualified. The plan has 4 employees of which 3 are eligible; however, during the plan not one of the 3 employees actually made salary deferrals. In the next plan year, 2 of 3 eligible employees did defer, but one did not. The reason for the employees not deferring in each of the years was due to their personal financial conditions; i.e., they thought they could not afford to defer.

Is the plan non-qualified in either of the years? I have found no other cite which states that the employees must actually defer in a plan year for the plan to remain qualified.

The book is incorrect, at least half of the employees eligible to participate in the SARSEP must elect to defer something.

Guidance on a minimum amount does not exist. [IRC 408(k)(6)(A)(ii)]

Year 1: If none of the employees elected to defer anything, then there is really no problem.

Year 2: 2 out of 3 is more than at least half, so the plan is okay for year.

Can you provide me with the date and page so I can notify the author. Or, better yet, fax offending page to 317-254-0386 (no cover sheet needed).