SEP contribution for terminated/lost employee

[rfahey]

Company has just done its SEP calculation for 12/31/09 plan year.

A terminated employee is entitled to a contribution of $279 who was never in the plan and does not have an account.

She cannot be found at this time either.

What do they do ?

[rcline46]

Open an IRA and make a deposit. Use private locator service or IRS to find them. There is no choice.

[Bird]

Talk to the investment company handling the assets. They should allow the sponsor to sign an application on behalf of a missing participant.

[Guest djw]

Talk to the investment company handling the assets. They should allow the sponsor to sign an application on behalf of a missing participant.

I'm finding that financial institutions won't open an account without the employee's signature. Do you know of any that will allow the employer to open the IRA account on behalf of the missing employee?

[Bird]

American Funds has opened accounts with the employer's signature. But you can't just go to some random bank or investment company and demand that they take that money; go to the one that is getting the other money and tell them that that's part of the deal. Repeat as necessary until you get satisfaction.

[Gary Lesser]

Yes, this can be done; it has been done.

The proposed income tax regulation that authorize an employer to do so were issued many years ago and are still current. Give them a copy of the regulations. They institution will flag the account to require that customer identification be obtained before funds are allowed to be withdrawn. It may esheat instead. In some states the principal amounts are not forfeited after esheat. [i do not know what CIP procedures are followed in this case (esheat)-- does anyone else ??]

Understand, the smaller the bank (lower the level) the longer it will take to get it established!

Proposed Treasury Regulations Section 1.408-7(d) follows--

(d) Participation requirements--(1) Age and service requirements. This paragraph is satisfied with respect to a simplified employee pension arrangement for a calendar year only if for such year the employer contributes to the simplified employee pension on behalf of each individual who is an employee at any time during the calendar year who has--

(i) Attained age 25,

(ii) Performed service for the employer during at least 3 of the immediately preceding 5 calendar years, and

(iii) Received at least $200 compensation from the employer for the calendar year.

(2) Execution of documents. The employer may execute any necessary documents on behalf of an employee who is entitled to a contribution to a simplified employee pension if the employee is unable or unwilling to execute such documents or the employer is unable to locate the employee.

(3) Required employment. An employer may not require that an employee be employed as of a particular date in order to receive a contribution for a calendar year.

(4) Nonresident aliens and employees covered by collective-bargaining agreements. An employer may exclude from participation in the simplified employee pension arrangement employees described in section 410(b)(2)(A) or 410(b)(2)©.

See also: IRS Training Document at http://www.irs.gov/pub/irs-tege/epch1502.pdf (see page 15-5), which uses the words "must establish" instead of "may establish."

Hope this helps.