SEP contribution not made for ee

[Monica Barnard]

CPA needs your input on a situation with a client's SEP plan. They made the SEP contributions for the client and her spouse. There was also one employee who was eligible and CPA had calculated the amount for them on her as well. In doing the monthly financials CPA saw that client had written the checks for their contributions but not ee. When questioned why this wasn't done, the client said the employee left their employment in 2007 so they weren't going to make the contribution for her (she was employed at the end of 2006)

Reaction is that they can't do that; if she was eligible she has to have a contribution made for her. The question now is what are the risks to the plan with them funding only 2 of the 3 accounts? Is the plan in jeopardy? Can a SEP be disqualified? Can client "fix" anything by making the contribution now even though it is past the 9/15 deadline for the corporate return?

Thanks for your advice.

[Gary Lesser]

It would appear she is entitled to a 2007 (and 2006) contribution. This ERISA plan could be disqualified. All eligible employees must participate. The uniform allocation formula has been violated, and all contributons for year may have to be considered as excess contributions in the IRA and rendered non-deductible by employer.

In general, and assuming this is not an intentional error, restoritive contributions should be made with interest as soon as possible. I believe the DOL has a calculator that can be used to calculate interest. See too, Rev. Proc 2006-27 (EPCRS), Section 6.10 regarding SEPs and Section 8.01 and 8.02 reagrding factors and requirements for self-correction of errors that are not egregious and not significant. The longer one waits to fix an error, the more likely self-correction can not be used as a fix. Hope this helps.