Employer establishes a SEP through the adoption of a SEP Adoption Agreement with an insurance company in 1997, and made contributions through 2001. This year the employer set up a 401(k) plan, and does not intend to contribute to the SEP plan. Does the employer have to amend the SEP for GUST, etc.? Does it matter that the owner still has an IRA funded with the SEP contributions? Can the owner convert the IRA to a "traditional" IRA to avoid updating the SEP?

The SEP-IRA is a traditional IRA; so that won't work.

In general, the SEP will be amended by the sponsor. The IRS appears to require that SEPs (but not IRAs) be signed by employer.

If the IRA accounts are moved away from the existing sponsor, the sponsor may or may not notify you of any changes made to the SEP (or IRAs). If the new IRAs are established as a SEP, the organization will require a model or prototype SEP be adopted.

Slightly different scenario:

Client has an "old dormant" SEP (I guess that means contributions have not been made for several years). He wants to know if the SEP is still in compliance (GUST/EGTRRA) and if contributions can be resumed. My expertise is in qualified plans, so I'd appreciate it if someone can help with this situation.

Can they restart contribs?
What needs to be done to update the plans (in a previous thread Gary said [the IRS didn't necessarily agree with me - see edited post above-gsl] the document sponsor updates the doc. and a signature is probably not required). I'm wondering how this is handled if a 5305 is used.

Thanks.

I have this exact same question. If sponsor is using the IRS Model SEP do they need to re-execute the 5305 by TOMORROW to amend for GUST and EGTRRA?

If they have an individually designed plan because of integrating with Social Security, is the remedial amendment period over at 9/30/03?

This is from 2002-10. I don't know if these dates were modified.

http://benefitslink.com/IRS/revproc2002-10.shtml


SECTION 4. ADOPTION OF REVISED IRAS, SEPS AND SIMPLE IRA PLANS

.01 Model IRAs. The Service expects to issue revised model IRAs in early 2002 containing EGTRRA changes and required minimum distribution rules that comply with the final regulations. Existing model IRAs may not be used to establish new IRAs after June 1, 2002. An individual using an existing model IRA who wants to take advantage of the 2002 EGTRRA changes to IRAs in 2002 must adopt a revised model IRA (or an appropriate amended prototype IRA) by the end of 2002.

.02 Prototype IRAs. An individual using a currently approved prototype IRA must adopt either (1) the prototype sponsor's amended document within 180 days after the date the Service issues a favorable EGTRRA opinion letter on the amended document or (2) an appropriate model IRA by the end of 2002.

.03 Section 408© IRAs. An employer or employee association using a currently approved § 408© IRA must adopt an amended § 408© IRA within 30 days after the date the Service issues a favorable EGTRRA opinion letter on the amended document.

.04 Disclosure statements. A financial institution that serves as a trustee, issuer or custodian for a model or prototype IRA must change the corresponding disclosure statement, required pursuant to § 408(i), to reflect the contents of the revised IRA. The financial institution must distribute the amended disclosure statement to each individual using the revised IRA.

.05 Model SEPs and SIMPLE IRA plans. The Service expects to issue revised model SEP and SIMPLE IRA forms, also in early 2002, containing EGTRRA changes. Existing model SEPs and SIMPLE IRA plans may not be used to establish new SEPs or SIMPLE IRA plans after June 1, 2002. An employer using an existing model SEP who wants to take advantage of the EGTRRA changes to such plans for the first plan year beginning after December 31, 2001, must adopt a revised model plan (or an appropriate amended prototype plan) by the end of such first plan year. An employer using an existing model SIMPLE IRA plan, must adopt a revised model plan (or an appropriate amended prototype plan) by the end of 2002. However, notwithstanding the preceding two sentences or otherwise applicable notice requirements, participating employees must be notified of the increased EGTRRA contribution limits by October 1, 2002.

.06 Prototype SEPs and SIMPLE IRA plans. An employer using a currently approved prototype SEP who wants to take advantage of the EGTRRA changes to such plans for the first plan year beginning after December 31, 2001, must adopt the prototype sponsor's amended document within 180 days after the date the Service issues a favorable opinion letter on the amended document. An employer using a currently approved prototype SIMPLE IRA plan must adopt the prototype sponsor's amended document within 180 days after the date the Service issues a favorable opinion letter on the amended document. However, notwithstanding the preceding two sentences or otherwise applicable notice requirements, participating employees must be notified of the increased EGTRRA contribution limits by October 1, 2002.

.07 SEPs with § 415 rulings. An employer using a SEP that has a favorable ruling because participants also participated in the employer's terminated defined benefit plan must adopt an amended SEP in accordance with section 4.05 above. Because the aggregation rules under § 415(e) have been repealed, the Service will no longer issue rulings on whether a SEP, in combination with a terminated defined benefit plan, satisfies the requirements of § 415.

No. See above.

I am not aware of any individually designed SEP rulings (other than relating to controlled groups, 415, and discrimination involving allocations ( e.g., uniform and cents per hour)).

[ASIDE: if one were to submitted for approval, (very) arguably the $200,000 compenstion limit (imposed on model and prototype plans) under Code Section 402(h) would not apply. This might be attractive to a large employer with lots and lots of lower paid employees in an integrated SEP plan. If owners earn mega bucks, the 402(h) limit is artificially increased allowing an integrated contribution allocation of between $34,051 and $39,999.94.]

Sole proprietor had a SEP from the early 1990's on a 5305. In the mid to late 1990's set up a DB Plan and ceased contributions to the SEP. The DB Plan is terminated in 2005. He now wants to start contributing to the "old" SEP again.

1) Since he made no contributions to the SEP in the years when the DB was running, is there an issue that the SEP was set up with a 5305 which prohibits its use with a qualified plan?

2) Since he made no contribuitons to the SEP in years when the DB was running, is there an issue on the pre-2000 rule that a combination DB/SEP had to seek a determination letter with regard to 415?

3) Should the SEP have been restated on the 5305 revised for EGTRRA, or is this only applicable if you wanted to take advantage of the EGTRRA rules? (In other words does the fact that there were no contributions mean that a restatement was not required).

4) I assume that if he wants to make contributions again, he would need to update the SEP (not only for EGTRRA but because I believe "old" 5305s state that they cannot be used by an employer who has a terminated DB.)

5) How do you update the model SEP on a 5305? IRS says to adopt a "revised model plan" But the 5305 doesn't have any box to check for "revised" or "restatement." If you fill out the form again, it might appear that you now have 2 SEPs. I suppose if you don't fund the first one this really isn't going to be an issue. Or, maybe it is actually the solution. No update was required of the "old SEP" because there were no contributoins and now you are starting a new one that is fully compliant?

Any comments would be appreciated.

The resolution (of the B-of-D, Partnership, or Sole-Proprietor) could state that the adoption of the attached model plan is adopted as an amendment and restatement of the existing plan.