If you have a SARSEP and exceed the 25 employee limit, what must the employer do with the plan?

SEP contributions (only) would be permitted for such year. If elective contributions have been made, then they are all treated as regular IRA contributions and the amounts should be treated (for all purposes) by the employer as "wages." It would be nice if the employer also provided an explanation of why the amounts were included on the W-2. IMO, if the amounts are included on the W-2, then the employer will not have to pay the 10 percent penalty.

In the calendar year you have newly eligible employees who put you over the top (so-to-speak) you do not have to make only SEP contributions. Salary deferrals can continue for that year. The eligibility for a SARSEP plan is conditioned on having no more than 25 employees eligible to participate in the SARSEP at any time during the PRIOR calendar year.

In the following calendar year, you would only be allowed to make SEP contributions and would have to stop the elective deferrals. I believe the treatment described above is for where you fail to meet the other requirements (e.g..50% of eligibles deferring). The deferrals made are first treated against the individual's IRA limit, etc., etc.