SEP - Missed Contributions for Multiple Years

[Zoey]

I am not at all familiar with SEP's. I know enough to be dangerous.

However, a friend asked if I could help them (small company) with their SEP problem. They were given poor advice years ago and are just now realizing the mistake (pointed out by their broker). They thought they didn't have to give a contribution to anyone who didn't work at least 1,000 hours. I told them that hours cannot be required. After looking at their document (document is a prototype I believe, since it states "adoption agreement" and not 5305), they don't have the 3 out of 5 year requirement, minimum compensation requirement...the only requirement they have is age 21. What this tells me is that anyone who was 21 and employed by them at anytime is eligible. This goes back to 2000. So there are SEVERAL years that they will need to correct. (They were generous in giving a 15% contribution to those they THOUGHT were eligible each year.)

Now for the bombardment of questions:

Can this be corrected by calculating the 15% contribution for each year and then using the DOL calculator to calculate earnings (from 2000 - date of correction) and make the deposits asap?

Would there be a penalty (excise tax)?

Can they take the deduction if it doesn't exceed 25% of eligible compensation for 2010? What if it does?

What about 415 limits? (Most definitely will be over 100% of comp for several ee's, and some are long gone, so how can 415 apply?)

Does it have to be corrected all at once? (Could be as much as $100,000)

I wouldn't think, but is there a statute of limitation?

Would this be something they can correct themselves (using SCP)? Or will they have to go VCP route and pay the fee?

Anything else that you can think of that I may have not thought of, would be great too.

Thank you so much in advance!

[Jim Norman]

With that kind of money at stake, your friend should hire an ERISA attorney and discuss his options under attorney-client privilege.

[Zoey]

Funny you should mention that. They asked if they had any recourse against the broker or the accountant. I told them I didn't know, but that it wouldn't hurt to give an ERISA attorney a call.

I'm sure either way, they are going to have to make it right though, so I was looking at how.

Thanks.

[Lou S.]

I think you are well out of self correction as this goes back potentially 10 years. Pretty sure this will fall under VCP or walk in CAP.

Agree with all those who recommend qualified ERISA counsel.