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We have an existing SEP (20 HCEs and 1 NHCEs) with 25% employer contribution each year for each participant.  Employer wants to add a Cash Balance plan but does not want to leave the SEP arrangement and go with a PS/401(k) plan.  So we will have a SEP (not a 5305-SEP) with each participant continuing to receive 25% each year and then certain of the HCEs receiving some amount of allocation/funding into the CB plan.  The NHCE will be allocated whatever is necessary.

Is this a viable arrangement?  What is the tax deduction limits for a set up like this?  Can we allocate 25% in the SEP and also what is necessary in the CB and not exceed the tax deduction limits?

Are we allowed to consider what is allocated in the SEP for the NHCE when determining what the NHCE must receive in the CB plan just like we normally do when we have a PS/401(k) arrangement alongside a CB plan?

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Read your SEP document/form, it almost certainly prohibits the SEP from coexisting with a DB plan.

I recall running across a SEP document years ago that the sponsoring investment institution had gone to the trouble of having approved with a provision for combining with a DB plan but suspect it may no longer be available.

If you uncover such a beast please post for us all to be aware. 


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None of the SEP contributions will count toward satisfying the nondiscrimination testing needs for the DB plan, so the DB plan will have to pass nondiscrimination stand-alone. Many times, that much much higher NHCE benefit cost within the DB plan justifies the adoption of a profit sharing plan in lieu of the SEP.

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