SARSEP Plan

[Guest Heide]

The ASPA ERISA Outline Book states that eligible employees must ACTUALLY DEFER for the SARSEP plan to remain qualified. The plan has 4 employees of which 3 are eligible; however, during the plan not one of the 3 employees actually made salary deferrals. In the next plan year, 2 of 3 eligible employees did defer, but one did not. The reason for the employees not deferring in each of the years was due to their personal financial conditions; i.e., they thought they could not afford to defer.

Is the plan non-qualified in either of the years? I have found no other cite which states that the employees must actually defer in a plan year for the plan to remain qualified.

[Gary Lesser]

The book is incorrect, at least half of the employees eligible to participate in the SARSEP must elect to defer something.

Guidance on a minimum amount does not exist. [iRC 408(k)(6)(A)(ii)]

Year 1: If none of the employees elected to defer anything, then there is really no problem.

Year 2: 2 out of 3 is more than at least half, so the plan is okay for year.

Can you provide me with the date and page so I can notify the author. Or, better yet, fax offending page to 317-254-0386 (no cover sheet needed).