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403(b) and a SEP


Guest condor
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A 501©(3) organization has a SEP/IRA established fbo employees. The organization

funds the SEP/IRA. Employees choose mutual funds for their account. This organization

also has in place a employee maintained 403(B) in which the employees choose the

mutual fund investment. The responsibility the organization has is to deduct the

contribution from each employees check and send it to the custodian. During an audit,

the CPA doing the audit says this is a possible conflict in interest and may violate ERISA. Is this a conflict? When the plan was set up this organization was not allowed to do a SAR/SEP IRA so the 403(B) was chosen. Any help or suggestions would be

most appreciated.

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Guest CVCalhoun

The only way I could see this being a conflict of interest would be if one plan got something extra (e.g., a better earnings rate) because the other plan chose to invest the same place. For example, if the SEP/IRA chose to invest in a particular mutual fund because the 403(B) would thereby get a better earnings rate, it might be argued that the SEP/IRA was choosing its investments based on the interests of the 403(B) participants (who might be only highly compensated employees), rather than based on the SEP/IRA participants. Otherwise, I cannot see how merely maintaining two plans would pose a conflict.

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Guest rsmelson

Why is an audit being conducted for what appears to be a non-ERISA 403(B), and an IRA-SEP which may be covered by ERISA but does not file a 5500 (and in any event is intended for employers with less than 25 employees)?

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  • 3 weeks later...

This organization is federally funded and maintained by Privat Industry Council. They get audited once each year. The state formerly conducted the audits. Last year they went to private bidding. This CPA firm seems to think there is a conflict with having a SEP/IRA and a voluntary 403(B) for approximately 5 employees and not all employees contribute to their 403(B). I'm the broker for this client. If you've ever seen paperwork for this type of account it's basically an employee application, slalry reduction agreement and disclosue documentation. The CPA firm wants to see a 'plan document' which doesn't exist because this is not an 'employer sponsored plan'. Any help or suggestions would be appreciated.

W. Wilt

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Guest CVCalhoun

I'd suggest giving the CPA firm the an employee application, salary reduction agreement and disclosure documentation, and telling them that that is the plan. So long as the written documents cover the basics (e.g., nondiscrimination rules, which are typically not covered in the individual contracts), there is no reason that a "plan" cannot consist of more than one document.

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I did exactly that. It wasn't acceptable to them. So, here I am as a broker, not an attorney, trying to help my client for basically what I think the CPA firm should be doing. I have found no guidance locally. May I use our dialog as supporting documentation?

Thanks. W. Wilt

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Guest CVCalhoun

Fine by me, so long as you bear in mind the old I'm-not-your-attorney disclaimer. smile.gif

More seriously, I think that what the CPA may be thinking of is the rule that a SEP cannot have a salary reduction feature if the employer has another plan. Internal Revenue Code § 408(p)(2)(D). (It is, of course, hard to guess what their theory is without an explanation from them.) However, your earlier comments indicate that the SEP does not have a salary reduction feature, so this should not be an issue in your case.

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