SARSEP

[Guest Gcarl]

Hello, I am a CPA and I have a questions that I just can't answer anywhere else. This is my first post on this forum. Please help if you can

I have a client that initially used Form 5305A-SEP to start a SARSEP for his business (Model SARSEP). Then in 2002 he adopted, amended and restated his SARSEP using a "Prototype" SARSEP (later approved by the IRS).

He used the Model SARSEP from 1996 to 2001, then he has been using the Prototype SARSEP from to Jan. 1, 2002 to present.

Both the Model SARSEP and the Prototype SARSEP were properly adopted by corporate resolution and annual Board of Directors meetings minutes.

Also, the client has followed the plan properly since 2002 (at least) and has passed all the "Top Heavy" and "Deferral Percentage Limitation" tests.

Is the change from the "Model SARSEP" to a "Prototype" SARSEP in 2002 going to be a problem?

Or is it commonly allowed?

The only thing specific I can find anywhere is a sentence in Rev. Proc. 2002-10, Section 4, .05, it says "An employer using an existing model SEP for the first plan year after December 31, 2001, must adopt a revised model plan (or appropriate amended prototype plan) by the end of the first plan year.

It seems to me that the client is ok but I am by no means an expert. Please help. Thank you!

[Gary Lesser]

Welcome to BL Scarl.

So far you have not mentioned any problems.

The model document uses gross compensation for allocation purposes, the prototype could use either net (less elective) or total compensation for allocation purposes. Either way, it would appear that ADP testing is based on gross compensation. The plan document is most likely current being adopted in 2002. (unless the IRS approval date on the opinion letter was before 2002).

Good luck.

[Guest Gcarl]

IRS approval letter is dated 2003, so I think it's all ok. Thanks for your help. BTW GL bought your book yesterday and hopefully I will have it by tomorrow