F5305 - shouldn't use model if ever had DB?

[Guest kprhok]

I am seeing two different requirements regarding Who Should Not Use Model 5305.

One resource says employers can use the model form as long as "the employer does not maintain any other retirement plan and has not maintained a defined benefit plan at any time in the past"

Other material, including the 5305 Form (2004) and Publication 560, seem to have dropped the language restricting employers who held DB plans in the past.

I am trying to determine whether a prototype document will be required in these two situations:

1 - Employer maintains PS plan in 2010 but wants to set up a SEP in 2010. Can employer adopt the SEP before the effective date of termination of the PS plan? Let's say it's October and employees have met the requirements for an allocation for 2010. What is the best procedure for moving to SEP-IRA? do we have a problem if the PS plan termination date occurs after the establishment of the SEP?

2. Can an employer use the Model form if he ever maintained a DB plan?

Thanks for any help on this one!!

[Gary Lesser]

NO--An employer "currently" maintaining a plan can not establish a SEP using the model forms. Never could. But nearly all prototypes would be acceptable. In general, the profit sharing deduction limit is reduced by contributions to the SEP and aggregate contributions are subject to IRC 415 limits--e.g., $49,000/25%; and the SEP must separately adhere to IRC 402(h) -- e.g., $49,000/25% includable).

YES--An employer tht no longer maintains a plan (including a DB) may use the model form to establish a SEP.

Hope this helps.

[katieinny]

Gary: Does a frozen DB plan preclude a small not-for-profit from setting up a SEP, as long as they don't use the 5305? They also have a non-ERISA 403(b).