amending a SEP

[Guest NancyF]

My client wants to amend their existing SEP, which does not have an eligibility requirement, to a less than 1 year eligibilty requirement. The information that I have been able to find says amendment is okay up to the time of filing the corporate return with warnings about the possible discriminatory nature of such an amendment.

There are no HCEs in the plan so the discriminatory issue does not apply. My questions are:

1. Can they amend in 2007 for employees hired after the efffective date of the amendment? New employees in 2007 hired before the effective date would be immediately eligible.

2. What are the mechanics? The 5305 only allows a years of service option; can you enter a partial year?

Thanks for any and all help. I do not wade into the IRA world often.

[Bird]

I believe that eligibility criteria must be applied uniformly to all employees; that is, at the end of the year you will have an eligibility requirement of employment in (0,1,2 or 3) prior years and you will determine who is eligible for the year and make contributions accordingly. That is, I don't see any way to make eligibility changes effective on a date during the year applying only to participants hired after that date.

The only tweaking to the prior years of employment is to disregard "service" when compensation is below $450 ($500 in 2007).

(Unless something with partial years or months could be done in a prototype?)

[Guest NancyF]

Bird,

Thanks for your responses. I agree that the eligibility requirement is difficult to amend. I am looking for references to give back to my client with a thumbs up or down - you know how that is!

Any other readers have information and/or opinions?

[Gary Lesser]

No. The eligibility requirment is based on "service" during a year. So, any service equals 1.