Unusual SEP forumula

[Bill Presson]

Hoping a SEP guru will see this and can point me in the right direction.

Let me first say that I have asked for a copy of the SEP document (page?), but have not yet received it.

We are working with a law firm that has had a SEP for a number of years. All the owners make well over the compensation limit. For 2009, their contribution was about $35,000 for each of the owners. We asked why they didn't receive a maximum contribution since they had indicated that was very important.

The law firm’s accountant is telling them they did max out their SEP because it is 10.7% on first $20,000 and then 15% on remainder for max of $35,770.

I know that an SEP CAN be integrated, but this seems to be a very unusual formula to me. Does this make sense to anyone else?

Thanks.

[Gary Lesser]

The plan may not have been amended. The 15% limit applied before2002. With a $20,000 integration level, the maximum spread between the base percentage and the excess percentage is 5.7%. Perhaps the plan provides a step-rate formula and the employer selected or used 4.3% instead. A lower excess rate, if in accordnce with plan provisions, is allowable.

If a 4.3% spread with a $20,000 integration level is used, the maximum contribution would be $48,140 [$49,000 - ($20,000 x 4.3%)] for 2009

If a 5.7% spread with a $20,000 is used, the maximum contribution would be $47,860 [$49,000 - ($20,000 x 5.7%)]. The formula would be 14.2999980% up to $20,000, and 19.999980 on ecess compensation not to exceed $245,000 for 2009.

Hope this helps.

[Bill Presson]

The plan may not have been amended. The 15% limit applied before2002. With a $20,000 integration level, the maximum spread between the base percentage and the excess percentage is 5.7%. Perhaps the plan provides a step-rate formula and the employer selected or used 4.3% instead. A lower excess rate, if in accordnce with plan provisions, is allowable.

If a 4.3% spread with a $20,000 integration level is used, the maximum contribution would be $48,140 [$49,000 - ($20,000 x 4.3%)] for 2009

If a 5.7% spread with a $20,000 is used, the maximum contribution would be $47,860 [$49,000 - ($20,000 x 5.7%)]. The formula would be 14.2999980% up to $20,000, and 19.999980 on ecess compensation not to exceed $245,000 for 2009.

Hope this helps.

Perfect, Gary. I was hoping you would reply!