2003 SEP Contribution not satisfied!

[Jilliandiz]

My client has a SEP Plan and the gov't subsized 1/2 of the contributions b/c they help manage low income housing. However their fees, expenses, etc. have gone up and they cannot fund the entire SEP contribution for 2003...isn't this a problem?? Since were already at the end of 2004, dont' they have to fund the 2003 contribution b/c if they didn't they would be "taking away" the benefit?

Also, what would happen if this was for 2004? What if they began funding throughout the year and found out today, they can't afford to fund the rest of the year?

Any thoughts? I've never had this happen before?

Thanks

[Archimage]

Are you saying the contribution to the SEP is required? I have never seen a SEP document that had a formula other than discretionary.

[Appleby]

I don’t think the employer has any cause for worry, since SEP contributions are usually discretionary...an employer that decides to fund the SEP may fund it at zero to 25 percent.

Usually, the only notification that the employer provides is the notification to announce the establishing of SEP- so it is very unlikely that the employer made any announcement promising to fund the SEP for 2003. The “taking away” of a benefit usually applies to plans where contributions are mandatory such as money purchase pension, defined benefit and target benefit plans and such.

Failing to fund the SEP for a year should not cause any problems for the employer. One of the key benefits ( for employers ) of the SEP is the flexibility to choose not to fund it for a year or few- is situations such as these exists.

[Jilliandiz]

I was concerned b/c they began funding for 2003 and then decided they couldn't continue.

Here's more details...they have 5 companies subsidized by the gov't and only 2 of the 5 are not able to fund the rest of the 2003 contribution.

Is that a problem?

[Gary Lesser]

Are you suggesting that the contribution is required by some agreement or contract? If so, then there may be a contract issue (and the employees may be a third-party beneficiaries of the contract).

Are you suggesting that the 5 entities are controlled/related? If so, the contribution to the plan (whoever makes them) must be allocated to all eligible employees in the group in accordance with plan provisions.

It is highly unlikely that the SEP itself requires a contribution, but that doesn't mean that the employer can avoid a contract or agreement to make a contribution. That is a matter of state law.

[Jilliandiz]

No there is no controlled group/related issues here. The 5 companies are set up under 5 separate plans....so is it safe to say it doesn't matter if all 5 don't contribute the same amounts? I would think so since they are separate.

Thanks for your help!

[Gary Lesser]

If the employers are part of a controlled/related/affiliated employer, as those terms are defined in the code, then all employees of all such entities have to receive the same formula allocation. The fact that there are separate plans means nothing (but possible problems). If they are R/C/A, then the plan that has the most libral eligibility requirements and highest allocation controls (since all employees have to be treated as if employed by a single employer).