What needs to be done to terminate a SARSEP?

[Richard Anderson]

What needs to be done to terminate a SARSEP? The employer wishes to start a safe harbor 401(k) in 2001.

[Guest FredReilly]

I think if you used the model 5305, you need to have a formal resolution eliminating the elective contributions and a notice to employees within 30 days of the effective date. If you use a prototype or custom document I would guess that a similar procedure applies, with consideration for any unique plan provisions.

[MWeddell]

Buyer is considering acquiring Seller. Seller sponsors a SarSEP. Buyer wishes to terminate or cease allowing contributions to the SarSEP and to make the employees eligible for 401(k) and matching contributions in Buyer's existing qualified plan.

Does anyone know how to terminate a SarSEP?

Any other issues the Buyer should be aware of? I already thought of coordinating 402(g) limits.

Here's what I found out so far on the termination issue:

I'm not very familiar with SEPs or SarSEPs. The only primary guidance I could find was from IRS Notice 81-1, if indeed that's still current law, which seems to imply that one can just amend the SEP agreement to discontinue contributions.

However, I also saw this excerpt from the Individual Retirement Account Answer Book, 7th edition, by Panel Publishing, which seems to imply that a more formal process may be needed. Too bad it didn't give a citation:

"Q 12:74 How is a SEP or SARSEP terminated?

A SEP may be terminated by an amendment prepared by the employer. Employees must be given notice of the amendment. Because contributions are generally discretionary, a formal termination is rarely used to terminate a SEP. To discontinue elective contributions under a SARSEP, however, an employer would have to formally terminate the elective portion of the plan."