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Amendments and notices

Guest jaturner

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Guest jaturner

I have several questions regarding a SEP (not SARSEP). I want to insure we do everything correctly in the future and identify anything we may have done incorrectly in the past. I believe we are okay as to plan operation and intent. These questions concern the details of "proper documentation". A SEP is supposed to be a "simplified" plan; hopefully, someone can provide specific confirmation that small companies don't have to "go overboard" in these areas.

1. Must employees who terminated their employment in a prior plan year (no longer eligible for contributions) receive copies of various required notices in future years, such as amendments and contribution statements? I would assume the answer is NO, but I want to make certain. I would like to think that, beginning in the plan year after termination, we can treat them as if they never existed for EVERY future action, unless they become re-employed.

2. Must employees receive a statement of contributions in years when the contribution is zero? I have seen various language that seems to go both ways for this requirement, so we have been providing them. Seems needless to me.

3. After a plan is established, must a corporate resolution be adopted to make each contribution, or is that purely a management prerogative like most other expenditures?

4. Must corporate resolutions to adopt or amend a plan be in any special form, or use any particular wording (except for the resolution boilerplate itself)? Obviously, they must be specific enough to identify the exact documents being adopted or amended, but is any other "legalese" required to satisfy the IRS? For instance, I have seen references to "amend and restate the plan". Are these or any other specific words required or is any wording that adequately conveys the intent ok?

5. I am very confused in one area. We are considering changing plan sponsors (example: moving the SEP accounts from trustee A to trustee B). Should we (a) terminate Plan A with a resolution, then make a resolution to begin Plan B as a new plan; (b) just adopt Plan B, making no reference to Plan A and letting it "hang"? In a sense, this might be no different than adopting an amendment; the plan IS changing either way. Any very specific guidance would be enormously helpful. (See related wording question in #4 above.)

If we change to trustee B, he will let us use 5305-SEP. I prefer to do it that way instead of using his prototype as we did with trustee A. What confuses me about all this is that I don't really understand when to use "adoption", "amendment", "restatement", and what events create the need to terminate a prior "plan" and start a new one. To me, it is one plan all along, just different "suppliers". But, all the documentary possibilities are so complex, I need guidance that I have not been able to find anywhere to do this correctly.

6. We are a very small S corp, but thinking about converting to C corp. Would any of the items above be done differently for either of these corporate forms?

7. Are questions like this answered "very explicitly" in the SIMPLE, SEP, SARSEP Answer Book? If so, I will purchase it today.

Thanks for a great site! The Q's and A's here have already been enormously helpful to me.

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I'll try to address these by reference the number of the question and a short answer:

1) No. A SEP is treated as an IRA for all distribution purposes. If the employer isn't funding that employee (or former employee's) account for the year, the technically it doesn't exist.

2) No. Each year, the employer funds contributions to Traditional IRAs under a Simplified Employee Pension (SEP) arrangement. In such years that no funding is made, then there is no operational requirement (as in qualified plans).

3) Purely at the discretion of management. If such resolution were required, it would be in the language of the SEP agreement.

4) Not really, but an issue of good practice. Each business has a decision making structure. That structure precludes a janitor from making changes to the plan. The resolution merely documents that such decisions were made by the appropriate decision making authority. Not necessarily a technical requirement, but just good business.

5) No. The plan is the same. Each employee may chose, or you may go with a designated financial institution. Nothing would constitue a termination of one SEP and re-establishment of another. Even if it did, no big problem. A SEP may be amended up to the tax filing deadling (including extentions). There are not cutback issues (411(d)(6)) pertaining to SEPs.

6) Nothing is explicit in those answer books; but that is merely my assessment.

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To expand on ERISAnut's accurate response, especially regarding 4 and 5 - you can just adopt a brand new SEP any time you want to make a change. Do make sure any contributions associated with that document go to the provider associated with that document (i.e. if you had a document with A and then started using B's document, new contributions can't go to A). And I suggest that any changes be made by adopting a new document instead of "amending" an old one - they are typically so short that it's just as easy to re-adopt as amend...and anyway you have to use pre-approved language, so you can't go making up your own provisions - if you insist on "amending" such amendments should be limited to the nature of "box 1 is unchecked and box 2 is checked" or whatever.

And just as a general concept, SEP-IRA accounts effectively become the particpants' own IRA accounts as soon as the money is in. They can do what they want with them, including rolling over from old vendor A to vendor B, but that can't be forced.

Ed Snyder

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