Various SEP Questions

[Guest Newspeak1]

My employer has had a SEP plan for about 25 years and I've recently discovered that about 20 of our employees are not enrolled in the SEP plan. Some say they have never heard of it, others don't want it and many just claim they don't understand it and that is why they have never enrolled. Regardless of the reason, we have about 20 current employees who are not enrolled.

1. How do others get employees enrolled?

2. What do we do about employees who no longer work for us but were eligible to participate and didn't?

3. What are we liable for and how do we correct this problem?

My understanding is that everyone must participate and that we must go back and fund the missing money plus interest...but I could be WAY off here.

Any advice and suggestions are welcome, as this is a newer role for me.

Thanks!

[Jim Chad]

First, it is not true that everyone must participate. In fact it is likely that not everyone CAN participate.

SARSEPs are simpler than 401(k) Plans. But they are NOT simple.

The first place you need to start is to look at the Plan document.

On the other, I work for a CPA firm and one of the services we perform is to do a compliance check on SEP's. If there is real concern maybe you want to pay someone with some expertize, a few hundred dollars to take a look at this Plan. The IRS started auditing these plans 4 years ago. And some of those audits have turned out very badly.

[Bird]

I think you need to clarify whether this is a SEP (employER contributions) or a SARSEP (employEE contributions).

I think Jim is assuming it is a SARSEP. In that case, there is a non-discrimination test that probably failed badly in addition to the issue of not offering it properly. If it's a SEP then it appears there might be significant contributions owed.

Anyway, it's good that you've realized there is a problem. It's not going to be easy to fix.

[Jim Chad]

Bird is right. SARSEP is one of the things I was thinking of. I was also thinking about eligibility requirements. They may be very liberal or somewhat restrictive. And you won't know until you read the document.

[Guest Newspeak1]

Thank you. It is a SEP where the employER contributes 5% of the employee's salary. The employee must make $500 the first year of service, work for the next entire year and is then eligible to participate the following January. Are we responsible for funding all the money we missed PLUS the lost interest?

[Bird]

I suspect the document doesn't say what you've posted.

Ultimately, yes, I think you'll need to make up contributions plus interest. But I'm better at keeping plans out of trouble than I am at fixing problems so I'm not sure about the details, and there might even be alternatives, like only going back so many years, if you go to the IRS and work with them on fixing it.

[Jim Chad]

You said 20 employees are not in it. How many people are employed at this company?