Using Model 5305 SEP

[Fisher]

What is maintaining a qualified plan? And is that only a plan under 401(a)/(k)? Not a 403(b)?

I thought I had read something in the past that an employer could establish a SEP using the Model 5305 SEP provided no employee was receiving contributions to both plans in the same year.

[Gary Lesser]

For purposes of being eligible to use Form 5305, the term qualified retirement plan includes an qualified annuity plan under Code Section 403(a).

[carol.lawrence303]

Just got off the phone with the IRS. I had submitted an anonymous EPCRS filing for a pro bono, not-for-profit client, which had maintained a 5305 SEP even though it had a pre-existing 403(b) plan.

The IRS agent initially believed that there was no employer eligibility failure! She checked with a supervisor, and the answer is now in transit.

I will update once I actually receive an answer.

The problem here is that there is no Code or regulatory citation for the proposition that the Form 5305 prohibition against maintaining both 5305 SEPs and "any other qualified plan" includes a prohibition against 403(b) plans.

Even the IRS manual uses only the stock phrase "any other qualified plan" restriction.

[Gary Lesser]

The model should be okay in your case.*

For years, it was common practice for an employer that maintained an "elective only" 403(b) plan to make employer nonelecive contributions ino a SEP arrangement. In that manner, the 403(b) arrangement avoided ERISA status. Those rules have changed some, but that is unimportant.Employers used prototype SEP documents, as the coordination of 415 limitations was covered under prototype plan language; and under the 415 regulations SEPs were disqualified last!.

The issue, is and has always only been Code Section 415. Unlike prototypes, the IRS model SEP documents do not have any language coordinating 415 with any other plans. However, you said the 403(b) was a "pre-existing" plan. Therefore, the model can be used since the any "other qualified retirement plan" is not being currently maintained. The restriction in the model Form 5305-SEP states: " 1. Currently maintain any other qualified retirement plan." {Emphasis added.}

Although a prototype can be adopted to address the document issues (retroactively to beginning of year if return due date not passed), the real issue is whether 415 has been exceeded and how the Service will allow you to fix it; the document itself is an unimportant side issue.

FWIW, a qualified plan is defined in Code Section 401(a), and a 403(b) is not a qualified plan. That being said, for some purposes that term includes other plan types. Those purposes include rules under Code Sections 72(p)--yes, 219-yes, 415-yes, see 403(b)(1), 4975 and 4980--no. HOWEVER, the model form does not use the word "qualified plan" it uses the phrase "qualified retirement plan," and that phrase is used in several code section headings and in text, but is not defined in the Code. The intent under the model plan, was for the reasons discussed above, was to treat a 403(b) plan as an "other qualified retirement plan."

Hope this helps.

*[Carol~~Just finished preparing spreadsheets for a client attorney with over 500 calculations for his EPCRS or DOL filing; so, EPCRS is my least favorite topic today. The fees have far exceeded to restoration amount; there should be a better way. But since you resurrected an old message, and reached out, I have responded.]