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Engineering SARSEP Plan

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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!


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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

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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.

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Ed Snyder

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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!


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Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089

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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.

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