Sarsep 15% of Contribution

[Guest mariaguzzetta]

Please one more time short and simple:

In determining if an employee in a SARSEP (employer is a corporation) has deferred over the 15% of comp limit do you first exclude the deferral amount (i.e. total gross compensation minus deferral X 15%)?

In determining the deferral percentage for the ADP test in a SARSEP the deferral amount is a percentage of the total gross compensation (which includes the deferral), correct ?

Has any of this changed for plan years beginning in 2002?

(Glad I don't run into many of these) Thanks much.

[Gary Lesser]

In determining if an employee in a SARSEP (employer is a corporation) has deferred over the 15% of comp limit do you first exclude the deferral amount (i.e. total gross compensation minus deferral X 15%)?

CORRECT

In determining the deferral percentage for the ADP test in a SARSEP the deferral amount is a percentage of the total gross compensation (which includes the deferral), correct ?

NO. Determine the PERCENTAGE contributed by each Non-HCE employee determined separately. Add the percentages and divide by the total number of people that could have made a contribution. Multiply by 1.25 for HCEs. DO NOT use a dollars/dollar approach-it doesn't work.

Has any of this changed for plan years beginning in 2002?

Not yet (but see HR 3529). In HR 3529 (if enacted) the SEP EXCLUSION limit would be 25% of TAXABLE compensation (20% of gross comp) but is NOT increased for elective. The deduction limit would be incresed (from 25%) to 25% PLUS Elective amounts. Thus, the proposed TC is almost as bad as the initial law (EGTRRA).l

[Guest mariaguzzetta]

Thanks on first issue. But on issue #2, I do realize that I had to find each NHC employee's deferral percentage on an individual basis, then add up the individual deferral percentages and then divide by the number of eligible NHC employees, then multiply by 1.25 to arrive at each HC employee's maximum deferral percentage allowable, but the question remains, when figuring an individual's deferral percentage, do I use gross compensation which includes deferrals, or do I use net taxable compensation which excludes the deferral as you would when figuring the 15% of comp max. ( i.e. ...

Gross Salary Deferral Deferral Percentage

$ 10,000 $ 500 5 %

or is it

Gross Salary minus Deferral Deferral Deferral Percentage

$ 9500 $ 500 5.26 %

??? Thanks

[Gary Lesser]

5% OF $10,000 (AND NOT IN EXCESS 15% = 13.04%)

HCE = 6.25

Max E/er contribution for HCE w/ $10k of comp. is $1,406.25.

$625 + 781.25 = $1,406.25

$10,000 - $625 = $9,375 X .15 = 1,406.25