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Employer can't have a MPPP and a SEP ??

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A tax client (employer) of mine has two separate plans. One is a money purchase pension plan and the other a SEP-IRA.

I recently read that a employer cannot sponsor a SEP, Simple 401k, or a SIMPLE IRA at the same time that it sponsors any other type of qualified plan.

Can this be true ?

I knew that a Simple plan could not be sponsored if another qualified plan was also being sponsored ...but I never knew that a SEP-IRA could not be sponsored with another plan.

Is this a new rule? How long has this rule been around?

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An employer may pair a SEP IRA with a qualified plan ( such as a money purchase pension, profit sharing 401(k), defined benefit plan…)…However, the SEP cannot be a 5305-SEP. It must be a prototype SEP or an individually designed SEP

Life and Death Planning for Retirement Benefits by Natalie B. Choate



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The 5305 model SEP is the IRS model document. A prototype SEP has to be submitted to the IRS, and approved, like other prototypes. As Appleby previously noted, the 5305 SEP prohibits contributing to the SEP while still contributing to another DC plan. A prototype SEP can, and often does, allow the plan to have contributions to both, subject of course to normal 415 limits, etc., and may have other provisions as well that are not contained in the IRS 5305 model SEP.

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Beware of maximum limitations. Keep in mind that contributions must first be allocated to the MPPP. Thus, if aggregate limits are exceeded, the prototype SEP contributions are limited/reduced (e.g., the $40,000 limit). Beware, most, but not all prototype SEPs permit their use with a qualified MP plan.

Assume a 10% prototype SEP and a 15% MPPP. The total contribution can not always be allocated 40/60. For example. With compensation of $200k, owner receives $30,000 ($200,000 x .15) in the MPPP. Only $10,000 may be allocated to the SEP. Here, 25/75. If the MPPP were integrated with Social Security contributions, the SEP contribution wd have to be smaller or non-existant to be effective. If this type of a situation exists, care shd be taken so that the employees do not receive any more than they have to (by adjusting the SEP contribution to provide the owner with a specified dollar amount).

Assume a $40,000 MPPP contribution, having a SEP wd not provide owner with additional retirement plan contributions, deductions would increase, perhaps too loyalty; but at what cost(?).

Hope this helps.

p.s. Appleby, Butler, and Belgarath are correct. ;)

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