Aggregation of SARSEP w/ Qualified Plan

[Guest sammy]

Can SARSEP contributions made in the same year as 401(k) and profit sharing contributions be aggregated for 401(a)(4) testing purposes? Since I have read two different conflicting answers in reference books, please cite authority for your response. Thank you.

[Mike Preston]

How about if you cite your conflicting answers, first?

[Guest sammy]

Sorry, but I typed in the question without looking carefully at my sources. The conflict is actually between a post on BenefitsLink and the Canan Qualified Retirement Plans book. However, neither cite authority for their position.

Thanks.

[AndyH]

I think the answer is no because the plan is not qualified under 401(a). Have you found anything that contradicts this?

[Guest sammy]

A footnote on page 474 of the Canan Qualified Retirement Plans book (2000 edition) states "See the discussion in Section 10.2 on meeting the requirements of IRC 401(a)(4) with respect to combined plans. "Plans" for this purpose includes simplified employee pensions, as discussed in Section 4.8." This is the only thing I have been able to find on this issue so I am looking for a more definitive answer.

[Gary Lesser]

From 1.401(a)-4, Q&A 2(b)(3) provides:

(3) Definition of "plan". For purposes of applying paragraph (a) of this Q&A-2, the term "plan" has the meaning that such term has for purposes of determining whether the amount of contributions or benefits and whether other benefits, rights, and features are nondiscriminatory under section 401(a)(4).

Because a SEP is not subject to 401(a)(4), I do not believe that it can be considered for aggregate testing purposes.

[Guest mcw]

Does anyone have any additional thoughts on this?

I have a similar question. 4 PCs form a partnership. The partnership has no employees but the PCs, the partnership, and an LLC are in an affiliated service group. Each of the PCs have their own MPPP. The LLC has a SEP. Can we aggregate the MPPPs and the SEP for testing purposes?

[AndyH]

I agree with Gary's comments.

[Mike Preston]

mcw, it sounds like there is a lot of explaining to do to the partners. Good luck. And hope they don't shoot the messenger.

[Guest mcw]

I know. Thank goodness we did not set this one up. We are trying to go under voluntary compliance. However, I do not know how to fix it. We do not want to make contributions for the LLC employees because the partnership is only a 1/7 owner of the LLC. If I could figure a way to count the SEP contribution, we could just reduce the partners' previous contributions to meet the testing. Any thoughts would be greatly appreciated.

[Earl]

Isn't it true that SEPs and SAR-SEPs are aggregated for Top Heavy Testing?

[AndyH]

That is consistent with my understanding, but that doesn't necessarily affect a(4).

[Tom Poje]

see also 8.81 of ERISA Outline Book 2003 edition

Coverage:

Permissive aggregation rules apply only to qualified plans under IRC 401(a). Qualified plans may not be aggregated with....SEPs...

[Earl]

works for me