ERISA-Bubs Posted February 1, 2018 Report Share Posted February 1, 2018 We have an engineering client who operates a SARSEP -- a type of plan with which I am not very familiar. The SARSEP requires a new employee to satisfy the 3/5 rule for eligibility. This is not attractive new prospective employees with years of experience. Two questions: 1) Can an employer amend the SARSEP to allow earlier eligibility and, if so, do the eligibility requirements have to be the same for all non-excludible employees? 2) Is there any sort of industry standard for eligibility under a SARSEP? Thank you! Link to comment Share on other sites More sharing options...
Bird Posted February 1, 2018 Report Share Posted February 1, 2018 New SARSEPs couldn't be established after...1996?...but they can be amended so an eligibility change is permitted. "Standard" is probably "keep everyone out as long as possible" so that's the 3/5 rule. Odds are pretty good though that it's messed up - are they running the ADP test properly? Do they know about top-heavy contributions if it is top-heavy? The few of these that are left would probably not exist if they were actually run properly. Ed Snyder Link to comment Share on other sites More sharing options...
ERISA-Bubs Posted February 1, 2018 Author Report Share Posted February 1, 2018 Why do you say most SARSEPs wouldn't exist if run properly? My understanding is SARSEPs are much easier to run than traditional qualified plans, so wouldn't it make sense for a small non-profit to keep a SARSEP that is already established? Link to comment Share on other sites More sharing options...
Bird Posted February 2, 2018 Report Share Posted February 2, 2018 Probably fine for a small non-profit, but you specifically referenced an engineering firm. They are fairly easy, but there are pitfalls for the unwary. The last one I saw was probably not atypical - owner contributing the max, and when I discussed the SARSEP DP test I was told that another employee was contributing the max on very low income. Fantastic! Except that the other employee was his wife. And 3% minimum top heavy - "what's that?" Sorry but I've been doing this too long to be anything other than jaded and cynical. Lou S. 1 Ed Snyder Link to comment Share on other sites More sharing options...
Loves401(k) Posted February 2, 2018 Report Share Posted February 2, 2018 And the IRS is auditing SARSEPs now. I have been hired to calculate the "fixes" on 2 of them. Link to comment Share on other sites More sharing options...
Larry Starr Posted February 2, 2018 Report Share Posted February 2, 2018 I have NEVER seen a SARSEP that was done properly. And I do mean NEVER. They were advertised like the text book: BRAIN SURGERY: SELF TAUGHT! Lou S. and Bill Presson 2 Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Alex Posted February 2, 2018 Report Share Posted February 2, 2018 When I used to do SARSEP presentations, I would start out by saying "you show me an in-house administered SARSEP and I will show you a Disqualified Plan". In addition to the reasons listed in the other responses, most do not understand how to determine the date when an employee first becomes a participant when other than 0 years is selected when using the 5305A-SEP. Link to comment Share on other sites More sharing options...
NonProfit GC Posted February 10, 2021 Report Share Posted February 10, 2021 My nonprofit utilizes a SARSEP. IRS says that non-profits cannot have a SARSEP. I see in the Code where a nonprofit cannot create a SARSEP, but if organization creates SARSEP and then becomes a nonprofit, can they not keep the SARSEP? Link to comment Share on other sites More sharing options...
QDROphile Posted February 11, 2021 Report Share Posted February 11, 2021 Perhaps incorporation breaks what you perceive to be continuity of existence. Bill Presson 1 Link to comment Share on other sites More sharing options...
Suzanne85 Posted July 9, 2021 Report Share Posted July 9, 2021 This seems to work, QRDOphile Link to comment Share on other sites More sharing options...
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