Eligibility for SEP plans - entry date - employed as of certain date

[Guest dvandaeler]

A financial advisor has indicated that a client of his through his CPA has set up a SEP plan that indicates an employee has to be employed as of the last day of the plan year to be eligible to enter the plan. The company has seasonal employees and doesn't want to cover them even though they have met the eligibility requirements.

From my research, there is no indication that entry dates apply to SEP plans and therefore once an employee has meet the eligibility requirements they would be in the plan even if they were seasonal employees who only worked during certain periods of the SEP plan year (12/31).

I would greatly appeciate it if someone can confirm that I'm on the correct path. There are examples of determining eligibility on the IRS/DOL website for SEP plan but thought I would pose the question on here as well.

Thank you in advance for your response.

Dianne

[Bird]

You are correct; there (absolutely positively) no last-day requirements allowed in SEPs. Ask the advisor and/or CPA to prove it.

[Bill Presson]

Ask the advisor and/or CPA to prove it.

We should all do this so much more frequently.

[Belgarath]

I agree that no way, no how, with an IRS Model SEP.

Playing Devil's Advocate for a moment - is it possible that this is a prototype SEP, rather than an IRS model SEP?

That leads to the second question - would the IRS even approve a prototype SEP with the provision you describe? I do not know the answer to that.

But, I would definitely ask the CPA to show (if there is a prototype) the prototype language that would allow this.

[masteff]

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-SEPs-Contributions

"Do I have to contribute for a participant who is no longer employed on the last day of the year?

Yes, you do, if they are otherwise eligible for a contribution. A SEP cannot have a last-day-of-the-year employment requirement. If the employee is otherwise eligible, they must share in any SEP contribution. This includes eligible employees who die or quit working before the contribution is made. If you haven’t made a contribution for an eligible employee in your SEP plan, find out how you can correct this mistake."

[Belgarath]

And FWIW, here's a link to the IRS LRM language for SEP's. Nothing I saw would indicate anything to allow such a provision.

http://www.irs.gov/pub/irs-tege/sep_lrm.pdf

[Guest dvandaeler]

Thank you all for taking the time to respond, the great information provided and confirming what I had found in my research. I truly appreciate it.

I have found out that the client no longer has the same CPA and I have provided the Financial Advisor with the information that I have found. The current CPA would like the client to start a 401(k) Plan and he has this expectation of what had occurred in the SEP plan (incorrect information mind you) so at this point it will be educating the client on what should have happened in the SEP and then educating him on how the 401(k) Plan will work moving forward. I have already communicated that the SEP money should not be rolled into the 401(k) Plan.

Once again, thank you all for your comments and taking the time to respond:)

Have a great day!

[Guest dvandaeler]

Regarding the prototype document, I did do a search on the web and found a few prototypes basic plan documents/adoption agreements that have been written by various investment carriers. None of them indicated the option to have the last day rule for a contribution or anything regarding entry dates as to when someone could enter the plan once the eligibility requirements have been obtained.

The document provider we use also provides SEP document, which would be another great resource to go to for confirmation.

Thank you everyone!