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Amending a SARSEP


Guest Michael Spaid
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Guest Michael Spaid

I encountered an interesting situation today. A firm sponsers a SARSEP and the owners of the firm have been excluded as they are union employees. For some reason not made perfectly clear to me, the union owners have been retroactively excluded from the union plan for 1998 (it was amended to a 401(k) plan) and the firms contributions to this plan, on behalf of the owners for 1998 is going to be returned to the firm soon. How late after 1998 can a sponsor amend a SARSEP (or any SEP for that matter)? Specifically, can this plan now be amended for 1998 to allow the union owners to participate? If so, is there any way for them to "defer" for 1998? Lastly, am I correct in assuming that there is no equivalent of the ACP test in a SARSEP? I never work with these things but lately have been getting questions about them.

Sincerely,

Michael Spaid

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I don't know about amending after the end of the year - and you may only defer compensation you have not yet received so it is too late for the union/owners to contribute for 1998.

There is no "ACP" test for SAR/SEP because there are no matching or after-tax contributions, only employee salary deferrals and employer "profit-sharing type" contributions which are allocated to all eligible employees on either a "comp-to-comp" basis or using permitted disparity.

The "ADP" test is a little more restrictive than your 401(k) ADP - the HCEs are each limited, on an individual basis, to a salary deferral rate of 125% of the average deferral rate of the non-highly compensated employees.

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  • 2 weeks later...

I agree with Kathy. But may I shed some light on your inquiry. The employer has to be a union shop 100% so the owners must join the union, but they are not generally eligible to participate in the Union's plan and set up their own in a non-union plan. They are not really union members except for paying dues and getting a card. This is recognized by the IRS. [in real life, the owner's aren't always allowed to enjoy thegenerqal benefits of "union hall" or other benefits (credit union, layoff benefits, and so on).

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