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Employee claim for SEP benefits


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Law firm, two partners, each funding their own SEP to $49K every year. Two NHCE employees, both with more than 3 years of employment, never received SEP contributions. The are looking at a DB plan now and in asking my questions this came up. I've informed them that their SEPs have issues, they want to know the risk/consequences.

Obviously the deductions for prior years are at risk and they should correct this, but they've been around long enough to know the probability of IRS finding this is virtually nil.

What about the employees? Do they have a claim for benefits and earnings? SEP document obviously provides that employees are covered. Seems like SEPs would be included in the ERISA definition of an employer plan for benefits, even though the funds end up in IRAs, does ERISA apply or does something else give them a cause of action? Of course the SEPs may never have been established by the partnership, that's another issue.

I carry stuff uphill for others who get all the glory.

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