SEPS & Cross-Tested Plans

[Fred Payne]

Company A has an existing SEP and some funding for current year has been occurred. A new cross-tested PS Plan has been added for current year effective 1/1.

I know contributions and deduction limits are looked at on an aggregated basis, but what about the cross-test itself?

If the Profit Sharing allocations pass the Ratio Percentage test, I think I'm home free. But if the cross-test can only be passed by undertaking the Average Beneffits Test, do I ignore the SEP contributions when performing the ABT?

A SEP (and a SARSEP for that matter) are not "qualified plans" and I think I need not aggregate them for the cross-test. Am I correct?

[Belgarath]

I think you are correct. When you eventually get to 1.410(B)-7, SEP's don't fall under the definition of a "plan" that is, or can be, aggregated for testing purposes. So I agree. (I am assuming, by the way, that they are using a non-model SEP document - otherwise they have problems.)

[Fred Payne]

I'm relatively clueless on SEPs. What do you mean by a "non-model SEP document"? And if they have such, what would be the ramifications?

Thanks.

[Belgarath]

A model SEP is the IRS form 5305-SEP form. And it specifies that you cannot currently maintain another qualified plan.

A non-model SEP would be one which is not the IRS 5305-SEP. These are typically sponsored by banks, mutual funds, insurance companies, etc. - and these could have been drafted to allow contributions to another plan as well.