Plan Designs
Qualified Plans
| SEP | Qualified Plan | |
| Eligibility: |
Must cover all employees who: 1. Have reached age 21 2. Perfomed any service in 3 of 5 immediately preceding years. 3. Was paid at least $600 during each year. |
Must cover employees who: 1. have attained age 21. 2. Performed 1 year of service or can be 2 years if 100% vested on entry. 3. “Year of Service” means 1,000 hours. |
| Participation: | Must benefit 100% of eligible employees | Must benefit either 70% of all employees. Can exclude part-time (under 1,000 hours) employees. |
| Vesting: | 100% vested immediately. | Choice of : 3-year 100% vesting or 2-6 year graded vesting. |
| Contributions: |
Must be uniform relationship with compensation. Limited to the lesser of 25% of compensation or the current dollar limit. See the profit sharing brochure for the current limitations. |
May bear uniform relationship of compensation. May be weighted for Limitations: DB – Current dollar limitation, or 100% of average compensation of high 3 years; DC – current dollar limitation, or 100% of compensation. See the Defined Benefit and 401(k) brochures for current limitations. |
| Distribution: | 10% excise tax on early withdrawal prior to age 59 ½. | 10% excise tax on early distributions (before age 59 ½ or early retirement before 55). |
| Loans: | Not allowed. | Allowed within specific limits. |
| Discrimination: | Contributions may not discriminate in favor of highly compensated. | Contributions may not discriminate in favor of highly compensated. |
| Trust Issues: | Plan may not be self-trusteed and cannot invest in life insurance. | Requires a qualified trust, but may be self-trusteed. Trust may invest in life insurance. |
| Cash or Deferred Arrangement (401K Feature) |
50% of eligible employees must defer salary. Each highly compensated employee can only defer 125% of average deferral percentage of non-highly compensated employees. Employer cannot have more than 25 employees in preceding year. No new salary reduction plans may be established after Dec. 31, 1998. |
See “Participation.” Average deferral percentage of highly compensated cannot exceed: If non highly compensated deferrals are less than 2%, H/C is 2 times. If non-highly compensated is between 2% and 8%, H/C is 2 plus percentage points. If non-highly compensated is more than 8%, H/C is 1.25 times. Safe Harbor alternatives available to eliminate discrimination testing. |
| Non-Model: | Any employer who ever maintained a DB plan or maintains any other plans or an affiliated service group or an Integrated Plan. | Not applicable. |
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