A client has called regarding their SARSEP that has been in place since 1977. In the adoption agreement, they selected an option to limit eligibility to employees who worked at least 30 hours per week. (I didn't know there was ever an eligibility option for hours of service, only a compensation threshold and the 3-of-five years provision.)
Is anyone familiar enough with the history of SEPs and SARSEPs to know when the hours-of-service provision went away?
The client would like to do what's right to bring the plan in compliance. Does any one have suggestions on how far back they have to go in order to do that?
Thanks for any help!
Full Version: Old SARSEP with 30-hour per week eligibility
Proposed Treasury Regulations Section 1.408-7(d) which utilizes the "at least 3 of the immediately preceding 5" years (the "3-5 rule") was published on July 14, 1981. The Code provisions applicable to SEPs were created by the Revenue Act of 1978 (also utilizing the "3-5" rules) and were effective for tax years beginiing after 1978.It is possible that the client was using a plan intended to be a prototype plan. Was it amended by sponsor? Was it approved (have a copy of "notification letter" approving plan)? If not, the plan may have been bad from the start. If so (was IRS approved), the plan would be okay, at least until it would have had to be amended (generally, 12/31/87 or shortly after approval by IRS of amended prototype); see Announcement 87-20 (below). You might wish to contact the plan sponsor's compliance department.
Copies of plan documents (regarding "determination and notification letter requests') are available under applicable Code provisions (see IRC Sec 6103) and the Freedom of Information Act.
QUOTE
Announcment 87-20
Form 5305-SEP, Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement, has been revised to incorporate the changes made by the Tax Reform Act of 1986.
The Form 5305-SEP is used by employers to make an agreement to provide benefits to all employees under a simplified employee pension (SEP) plan described in section 408(k) of the Internal Revenue Code. The completed Form 5305-SEP becomes the employer's plan document. This document is to be retained by the employer and is not to be filed with the Internal Revenue Service.
The revised form must be used by employers who would normally use the IRS model SEP to establish new simplified employee pensions (SEPs). Employers who have established SEPs in the past using an earlier version of Form 5305-SEP must complete and sign a new model SEP form by December 31, 1987, in order to continue to have a valid SEP. The employer must also give a copy of the new Form 5305-SEP to all eligible employees so that they will be aware of the changes in the law that pertain to SEPs.
Form 5305-SEP (Rev. January) 1987 now available.
Form 5305-SEP, Simplified Employee Pension-Individual Retirement Accounts Contribution Agreement, has been revised to incorporate the changes made by the Tax Reform Act of 1986.
The Form 5305-SEP is used by employers to make an agreement to provide benefits to all employees under a simplified employee pension (SEP) plan described in section 408(k) of the Internal Revenue Code. The completed Form 5305-SEP becomes the employer's plan document. This document is to be retained by the employer and is not to be filed with the Internal Revenue Service.
The revised form must be used by employers who would normally use the IRS model SEP to establish new simplified employee pensions (SEPs). Employers who have established SEPs in the past using an earlier version of Form 5305-SEP must complete and sign a new model SEP form by December 31, 1987, in order to continue to have a valid SEP. The employer must also give a copy of the new Form 5305-SEP to all eligible employees so that they will be aware of the changes in the law that pertain to SEPs.
Form 5305-SEP (Rev. January) 1987 now available.
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