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Amending SEP Eligiblity


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I recall something about the amendment being effective the 1st day of the plan year, and the notice requirement is that participants must be provided with notification and explanation of the amendment 30-days before the effective date of the amendment. Therefore, any changes made now will be effective for next year and participants should be notified by December 1. The SEP agreement is a good place to check, as it should include n explanation of the amendment process and effective date.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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There's no doubt that you could simply adopt a new SEP with the new eligibility requirements, and do it as late as the due date for filing the business tax return. Unless someone can prove otherwise, I'd lean towards allowing an amendment in that same time frame.

Ed Snyder

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In general the SEP can be amended any time up until the due date of the business tax return. However, if any contributions have already been made for the year, the mid-year change would likely cause a violation of the "uniform allocation" rules; integration with social security aside. [see. Prop Treas Reg Sec 1.408-8©] Having two active SEPs for the same year is not generally a good idea (and in addition, may also cause a cause a violation of the uniformity rule).

Caution: If the HCEs (e.g., owner) could not have met the plan's new eligibility requirement at the time the plan was originally adopted, the plan may be disriminatory as a result of the "rolling eligibility." The notice explanation to employees does not have to be provided before the amendment is effective (in the case of a SEP). The plan will contain language as to what has to be provided and when.

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