Plan Designs

Qualified Plans

  SEP Qualified Plan

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.

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
Age and integrated with Social Security
to give highly compensated a larger
share of the contribution.

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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