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If an employer indicates that the SEP does not include employees whose total compensation during the year is less than $450, does this requirement apply only to determining when the employee first becomes eligible or does it apply to all years that the employee makes less than $450? For example, if A makes $ 400 in the first year, $3,000 the second year and $350 in the third year, is the employer obligated to make a contribution for A in the third year?

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How do you maintain employee status with $350 per year?

I understand that if you start a new employee in the last few weeks of the year, at a low enough hourly rate, that it is possible to only earn $350-$400 for that part of the year, but this employee apparently is not a new late in the year hire but has been there in 3 different calendar years. $350 for the calendar year at $6 per hour would mean that for the entire 52 weeks this employee only worked 60 total hours (OT not included). Even at Part time status, I do not understand employee status. This to me is casual labor.

Wouldn't exclusion of PT, or by hours, be easier than using compensation?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I know nothing about SEPs. I wondered about the employee status. Can you really have an employee with total income for 52 weeks of $350? How many hours could they have worked? How do they remain an employee if not at work for the vast majority of the year?

As you pointed out "it is only employed with no pay limit, so it is the "employed" part that I wonder about firsst, then the "limit". Is there a minimum?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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There's no 'last day' requirement; a person can be very seasonal and still fulfill the requirements for both eligibility and for ongoing current year allocation. The stipulation for earning a year of eligibility service is merely "performed service;" there's no minimum wage required. For example, maybe I annually hire a person to harvest the fruit of my 1 peach tree and my 1 apple tree. So, this job will last less than a week per year and likely will not generate $450 in wages. But the year counts anyway for purposes of eligibility.

As a reminder, if a plan requires 3 years for eligibility, that normally means 3 prior years, and the employee gets nothing in year 3, regardless of wage level. It's only in year 4 that he first has the possibility of receiving an allocation. At that point, if the plan specifies a minimum wage, currently not to exceed $450, this is used in year 4 and subsequent years to decide whether the person will receive an allocation.

The plan can choose to exclude the people described at 410b()(2) who are collectively bargained or are nonresident aliens with no U.S. source income.

To repeat, once the person has entered into participation, only then can the plan use the $450 to see if that person will get an allocation for the year.

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Thanks for the response. I found it quite an eye opener.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I just thought it should be noted that eligibility is based on "service" (without regard to compensation). Contributions are (of course) based on compensation. Like the age and service requirements, the minimum compensation requirement ($450 for 2006) is determined on a yearly basis ("...for a year only if for such year..."). ALL three are, technically, annual "participation requirements."

Example. W has been performing services for husband's sole proprietorship for three years on a part-time basis (she receives no compensation). Each year, W stuffs and addresses 1,000s of marketing brochures for H's business; signing H's name to each one. The following year (year 4), she begins to receive compensation--more than $450--for her services and attains age 21 on the last day of the plan year (12/31). Absent an exclusion (e.g, alien, collectively-bargained), W is eligible to participate in a SEP of H's business, and receive a contribution if any are made for year 4, because she has met all all three participation requirements .

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