Bob
Parrish CPA, P.C. HOME
(941) 387-0926 ~ It Is:
Introduction
Objectives
Your Questions
What You Will Need
Warning
Intro Summary
Related Information
*Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
*Tech Analysis & Citations
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
*TAX KILLERS
Title 1
Title 2
*COST KILLERS
Title 1
Title 2
*PREPARE
FOR ADVISER
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
*DO IT YOURSELF
Action
Checklist - What To Do
PRINT ALL THE REQUIRED DOCUMENTS
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
FINAL STEPS
*FINANCIAL ACCOUNTING
Financial
Statement Presentation
Notes
to Financial Statements
How to
Make Entries
What
Kind of Records to Keep
Bookkeeping
Methods - Cash, Accrual and Other
How the
Business Entity Affects the Recording
*COMPLIANCE
Title 1
Title 2
*ALERTS - DANGERS
Action Checklist
Alerts
& Dangers - Risks
Asset
Protection
Your
Defense
*TOOLS
Title 1
Title 2
*SAMPLES
Title 1
Title 2
*REQUIRED REPORTS
Title 1
*CHECKLIST FOR DEPLOYMENT
Title 1
*CHECKLIST FOR MONITORING
Title 1
*INDEX
pro1040 and Consulting OnLine are ©
Retirement Plans - The SEP & SS Integration
Preface ~ Client Letter - What this idea is about
Dear
Client:
Description/Scope:
An exception to the general rule that SEP contributions must bear a uniform relationship to total compensation provides that a SEP arrangement may provide for a limited disparity in contributions to account for integration with Social Security contributions. Code Section 408(k)(3)(D). The permitted disparity is determined by a formula that takes into account the Social Security wage base and provides a maximum disparity allowed on benefits with respect to those above and below that wage base. Code Section 401(l)(2). Thus, to a limited extent, a SEP plan may provide a contribution that is a higher percentage of compensation for an individual whose compensation is above the Social Security wage base than is provided for an individual whose compensation is below the wage base.
Learning Objectives (What You Asked) ~ Your Questions: The following questions will be answered
This Topic OBJECTIVE is or What it Does
What You Will Need
| You Will Need | What or How Much? |
| Time | |
| Materials or Tools | |
| Library | |
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| Special Circumstances or Warnings | |
TOP
Engagement Status Letter ~ WARNING!
You have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Friday, March 29, 2002 10:12 AM
Summary
| Poor old Sue Started a set of books anew without reading these lines few and now Sue is in a Stew |
Related Information
-
A few closely related topics & pages From Bob Parrish CPA PC (left-click this to expand it):
Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
Your Answers
This
Topic OBJECTIVE is:
What it does Explanation of this topic and how it may affect you (for how it may
affect you also refer to :
Financial Accounting:
Bookkeeping & Financials ~ Compliance
- What is
required for protection, defense, etc. ~ Alerts & Dangers)
Purpose
To help setup a retirement plan that will be discretionary from year to year for the amounts of funding, provide for very simple reporting and compliance standards.
Who This Applies to:
Individuals, Corporations, Partnerships
When to Perform
Before the tax return is filed
Special Circumstances
Why This Is Important
This will assist the small business owner to start a retirement plan for one-self, to provide a benefit for employees as an incentive for production and loyalty, and to assist with compliance standards for the retirement plans.
General Benefits & Objectives
Tax reduction - Savings - Retirement - Employee Retention
Start of Plain English Section
Why or How it works - Both Sides of the Equation and Examples:
"Permitted Disparity"
The term "permitted disparity" refers to the integration of the employer's contributions with Social Security withholdings. As with other qualified plans, SEPs (with the exception of the model SEP), can be structured to allow an employer to favor those employees earning more than the current Social Security wage base. Many professionals prefer to use this method to allow a greater overall contribution for professional employees who earn income well in excess of the Social Security wage base. Integration with Social Security is virtually the only method of permitted disparity for SEPs. However, the integration calculations are generally very complex and may require the assistance of outside professional plan administrators, thus increasing administrative cost. Furthermore, SEPs are covered by the "permitted disparity" rules of IRC Sec. 401(1), which limit the allowed disparity in contribution percentages applicable to compensation above and below the Social Security wage base. These are the same "permitted disparity" rules that apply to qualified plans.
Under IRC Sec. 408 (k) (3), the "top heavy" rules of IRC Sec. 416 generally apply to SEPs. In years when 60% or more of the total contributions go to key employees, a minimum contribution must be made on behalf of non-key employees. The minimum contribution is the lesser of three percent of compensation or the highest percentage of compensation contributed on behalf of a key employee. IRC Sec. 416(i) (1) generally defines a key employee as an equity owner or highly paid officer of a business.
The integration formula causes the total contribution to a top heavy SEP to be allocated among participants as follows:
First tier: Three percent of compensation is allocated to all participants.
Second tier: Up to six percent of compensation over $55,700 is allocated to each participant.
Third tier: Any remaining unallocated portion of the contribution is allocated among all participants in proportion to compensation.
Start of Plain English Section
Comparisons
Contrasts
Start of Plain English Section
Cost v. Benefit Analysis ~ Its Value
Start of Plain English Section
Other
Start of Plain English Section
Reserved
Start of Plain English Section
Technical Analysis and Explanation
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
Commentary
LAW
§408(k)(3)
(C) CONTRIBUTIONS MUST BEAR UNIFORM RELATIONSHIP TO TOTAL COMPENSATION
For purposes of subparagraph (A), and except as provided in subparagraph (D), employer contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)) shall be considered discriminatory unless contributions thereto bear a uniform relationship to the compensation (not in excess of the first $150,000) of each employee maintaining a simplified employee pension.
(D) PERMITTED DISPARITY
For purposes of subparagraph (C), the rules of section 401(l)(2) shall apply to contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)).
Notice the cross ref to §401(1)(2)? That section is the basis for thepermission of the dispairty. 401(1)(2) is:
(2) DEFINED CONTRIBUTION PLAN
(A) IN GENERAL
A defined contribution plan meets the requirements of this paragraph if the excess contribution percentage does not exceed the base contribution percentage by more than the lesser of--
(i) the base contribution percentage, or
(ii) the greater of--
(I) 5.7 percentage points, or
(II) the percentage equal to the portion of the rate of tax under section 3111(a) (in effect as of the beginning of the year) which is attributable to old-age insurance.
(B) CONTRIBUTION PERCENTAGES
For purposes of this paragraph--
(i) EXCESS CONTRIBUTION PERCENTAGE
The term "excess contribution percentage" means the percentage of compensation which is contributed by the employer under the plan with respect to that portion of each participant's compensation in excess of the integration level.
(ii) BASE CONTRIBUTION PERCENTAGE
The term "base contribution percentage" means the percentage of compensation contributed by the employer under the plan with respect to that portion of each participant's compensation not in excess of the integration level.
§416
Because of the skewing of the contribution towards the
higher income participants, the SEP when integrated with Social Security will
usually by subject to §416. In brief Section §416 is as follows:
§416 (2) DEFINED CONTRIBUTION PLANS
(A) IN GENERAL
A defined contribution plan meets the requirements of the subsection if the employer contribution for the year for each participant who is a non-key employee is not less than 3 percent of such participant's compensation (within the meaning of section 415).
(B) SPECIAL RULE WHERE MAXIMUM CONTRIBUTION LESS THAN 3 PERCENT
(i) IN GENERAL
The percentage referred to in subparagraph (A) for any year shall not exceed the percentage at which contributions are made (or required to be made) under the plan for the year for the key employee for whom such percentage is the highest for the year.
(ii) TREATMENT OF AGGREGATION GROUPS
(I) For purposes of this subparagraph, all defined contribution plans required to be included in an aggregation group under subsection (g)(2)(A)(i) shall be treated as one plan.
(II) This subparagraph shall not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410.
[(d) REPEALED. PUB. L. 99-514, TITLE XI, Section 1106(d)(3)(B)(i), OCT. 22, 1986, 100 STAT. 2424]
(e) PLAN MUST MEET REQUIREMENTS WITHOUT TAKING INTO ACCOUNT SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS AND BENEFITS
A top-heavy plan shall not be treated as meeting the requirement of subsection (b) or (c) unless such plan meets such requirement without taking into account contributions or benefits under chapter 2 (relating to tax on self-employment income), chapter 21 (relating to Federal Insurance Contributions Act), title II of the Social Security Act, or any other Federal or State law.
§§§ Regs §§§
M-7 Q. What is the defined contribution minimum?
A. The sum of the contributions and forfeitures allocated to the account of any non-key employee who is a participant in a top-heavy defined contribution plan must equal at least 3% of such employee's compensation (see Question and Answer T-21 for the definition of compensation) for that plan year or for the calendar year ending within the plan year. However, a lower minimum is permissible where the largest contribution made or required to be made for key employees is less than 3%. The preceding sentence does not apply to any plan required to be included in an aggregation group if such plan enables a defined benefit plan required to be included in such group to meet the requirements of section 401(a)(4) or 410. The contribution made or required to be made on behalf of any key employee is equal to the ratio of the sum of the contributions made or required to be made and forfeitures allocated for such key employee divided by the compensation (not in excess of $200,000) for such key employee. Thus, the defined contribution minimum that must be provided for any non-key employee for a top-heavy plan year is the largest percentage of compensation (not in excess of $200,000) provided on behalf of any key employee for that plan year (if the largest percentage of compensation provided on behalf of any key employee for that plan year is less than 3%).
M-8 Q. If an employer maintains two top-heavy defined contribution plans, must both plans provide the defined contribution minimum for each non-key employee who is a participant in both plans?
A. No. If one of the plans provides the defined contribution minimum for each non-key employee who participates in both plans, the other plan need not provide an additional contribution for such employees. However, the other plan must provide the vesting required by section 416(b) and must limit compensation (based on all compensation from all aggregated employers) in providing benefits as required by section 416(d).
M-9 Q. In the case of the waiver of minimum funding standards of section 412(d), how does section 416 treat the defined contribution minimum?
A. For purposes of determining the contribution that is required to be made on behalf of a key employee, a waiver of the minimum funding requirements is disregarded. Thus, if a defined contribution plan receives a waiver of the minimum funding requirement, and if the minimum contribution required under the plan without regard to the waiver exceeds 3%, the exception described in Question and Answer M-7 does not apply even though no key employee receives a contribution in excess of 3% and even though the amount required to be contributed on behalf of the key employee has been waived. Also, a waiver of the minimum funding requirements will not alter the requirements of section 416. Thus, in the case of the top-heavy defined contribution plan in which the non-key employee must receive an allocation, a waiver of the minimum funding requirements may eliminate a funding violation and such waiver will preclude a violation under section 416 even though the required contribution is not made. However, the adjusted account balance (as described in Rev. Rul. 78-223, 1978-1 C.B. 125) of the non-key employees must reflect the required minimum contribution even though such contribution was not made.
M-10 Q. Which employees must receive the defined contribution minimum?
A. Those non-key employees who are participants in a top-heavy defined contribution plan who have not separated from service by the end of the plan year must receive the defined contribution minimum. Non-key employees who have become participants but who subsequently fail to complete 1,000 hours of service (or the equivalent) for an accrual computation period must receive the defined contribution minimum. A non-key employee may not fail to receive a defined contribution minimum because either (1) the employee is excluded from participation (or accrues no benefit) merely because the employee's compensation is less than a stated amount, or (2) the employee is excluded from participation (or accrues no benefit) merely because of a failure to make mandatory employee contributions or, in the case of a cash or deferred arrangement, elective contributions.
M-11 Q. May either the defined benefit minimum or the defined contribution minimum be integrated with social security?
A. No.
M-12 Q. What minimum contribution or benefit must be received by a non-key employee who participates in a top-heavy plan?
A. In the case of an employer maintaining only one plan, if such plan is a defined benefit plan, each non-key employee covered by that plan must receive the defined benefit minimum. If such plan is a defined contribution plan (including a target benefit plan), each non-key employee covered by the plan must receive the defined contribution minimum. In the case of an employer who maintains more than one plan, employees covered under only the defined benefit plan must receive the defined benefit minimum. Employees covered under only the defined contribution plan must receive the defined contribution minimum. In the case of employees covered under both defined benefit and defined contribution plans, the rules are more complicated. Section 416(f) precludes, in the case of employees covered under both defined benefit and defined contribution plans, either required duplication or inappropriate omission. Therefore, such employees need not receive both the defined benefit and the defined contribution minimums. There are four safe harbor rules a plan may use in determining which minimum must be provided to a non-key employee who is covered by both defined benefit and defined contribution plans. Since the defined benefit minimums are generally more valuable, if each employee covered under both a top-heavy defined benefit plan and a top-heavy defined contribution plan receives the defined benefit minimum, the defined benefit and defined contribution minimums will be satisfied. Another approach that may be used is a floor offset approach (see Rev. Rul. 76-259, 1976-2 C.B. 111) under which the defined benefit minimum is provided in the defined benefit plan and is offset by the benefits provided under the defined contribution plan. Another approach that may be used in the case of employees covered under both defined benefit and defined contribution plans is to prove, using a comparability analysis (see Rev. Rul. 81-202, 1981-2 C.B. 93) that the plans are providing benefits at least equal to the defined benefit minimum. Finally, in order to preclude the cost of providing the defined benefit minimum alone, the complexity of a floor offset plan and the annual fluctuation of a comparability analysis, a safe haven minimum defined contribution is being provided. If the contributions and forfeitures under the defined contribution plan equal 5% of compensation for each plan year the plan is top-heavy, such minimum will be presumed to satisfy the section 416 minimums.
Start of Revenue Procedures Section
Start of Private Letter Rulings
Tax Killers
Title 1
Title 2
Title 3
Title 4
Title 5
Title 6
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
Cost Killers
Title 1
Title 2
Title 3
Title 4
Title 5
Title 6
Management Info Sys, Decision Support Systems, Activity Based Management and Costing, Cost Accounting)
Prepare for Your CPA or Attorney (or prepare for doing this yourself)
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
About the Preparation Procedures
If you have decided this task must be done, the first procedure is to be certain you have all the facts important to this topic. So that you may know the value, to you personally, of this topic you must have facts of your circumstances. So that you may comply with applicable rules, you must have all the facts. Factual research is time consuming and if not performed wisely will be very expensive if not performed properly, and thoroughly. IF you decide to make this a do-it-yourself project you should seek the advice of a professional qualified in your jurisdiction to assist you with defining important information and then to overview the information you have gathered.
What to gather - an Organizer and Prepare for your CPA, Attorney or Financial Adviser
Organizer
From Your Other Business, or Financial Records
From Corporation Records or Organization Records (meetings, etc.)
Start of Preparing For You CPA Section
Do It Yourself - Forms Required to Be Filed, Checklists, Etc.
DO
IT YOURSELF
Action
Checklist - What To Do
PRINT ALL THE REQUIRED DOCUMENTS
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
Title 1
Title 2
Title 3
Title 4
Title 5
Title 6
How to do this - What to Do
GENERAL SETUP & STARTUP
PRINT FORMS AND DOCUMENTS NEEDED
PRESENTATION STANDARDS
STARTING - FIRST THINGS FIRST, OBTAIN WHAT YOU NEED
OBTAIN THE ORGANIZER AND BE CERTAIN ALL INFORMATION IS AVAILABLE
OBTAIN AND SORT THE INFORMATION
OBTAIN THE STANDARD WORKPAPER FOLDER SETUP
OBTAIN THE STANDARD PRESENTATION LAYOUT
OBTAIN & OPEN ALL STANDARD DOCUMENTS OR WORKPAPERS
OVERVIEW & BECOME FAMILIAR WITH THE ENTRANCE INTERVIEW FORM
OVERVIEW THE LIST OF INFORMATION AND CLIENT OR BUSINESS RECORDS NEEDED
START THE REQUIRED COMPUTER PROGRAMS
OBTAIN THE CHECKLISTS IF NEEDED AND WORK ON THE JOB BY EACH TYPE OF ACTIVITY OR EVENT
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
LIST OF THE STANDARD FORMS AND W/P NEEDED
OBTAIN THE DOCUMENTS FOR THIS JOB
PLACE BLANK FORMS IN THE CORRECT SEQUENCE
GENERAL & FOR ALL JOBS
Instructions for finalizing and completion - for example instructions for the mailing of forms to the IRS
Actions Checklist
Report Cover Letter
Required Documents and attachments
DOING THE WORK
PRINT ALL THE REQUIRED DOCUMENTS OR MAKE COPIES AS NEEDED
DETERMINE THE CORRECT PRESENTATION STANDARD TO USE
ENGAGEMENT LETTER AND DISCLAIMER
PRESENTATION IN GENERAL
WHAT THE ENGAGEMENT IS LIMITED TO
WHAT SERVICES WERE PERFORMED
HOW THIS HELPS & BENEFITS
4 WAY TEST APPLICATION
Is it the TRUTH
Is it FAIR
Will it build GOODWILL and BETTER FRIENDSHIPS
Will it be BENEFICIAL to all
OVERVIEW THE WORK
BEFORE FINALIZING THE WORK PROCESS CONSIDER THE FOLLOWING
Compliance
Paying Bills or other events
The professional should perform functions the client does not have time for
The professional should perform necessary functions the client staff does not have training for
Reduce Costs
Reduce Risks
Setting Goals or objectives
Setting methods for monitoring
Setting dates, methods & procedures for follow-up
Setting guidelines for defining when variances from the guideline warrant policy or procedure changes
Identify the policies or procedures that need to be changed to accomplish the goal or objective
FINAL OVERVIEW BEFORE THE JOBS IS ENDED & CLOSED
LOOK AT THE ORIGINAL QUESTION - has it been answered, were more questions added?
THE ANSWER - limit the answer to a short paragraph of about 7 sentences. Did this solve the issue? The ANSWER is not considered the SOLUTION
THE SOLUTION - understand the objective or goal and restate it. Were the goals met? What might prevent obtaining the goals. Do the benefits outweigh the costs? Reduce Costs? Reduce Risks? Setting Goals or objectives:
Setting methods for monitoring
Setting dates, methods & procedures for follow-up
Setting guidelines for defining when variances from the guideline warrant policy or procedure changes
Identify the policies or procedures that need to be changed to accomplish the goal or objective. State Remedial Solutions and Preventive Solutions.
ACTIONS - checklist, calendar, columnar presentation showing separate columns for Client, CPA, Broker, Bookkeeper, Lawyer, Insurance Agent, etc.
COST v. BENEFITS ANALYSIS
PROPOSAL
FACTS DISCOVERED & USED
COMPUTATIONS & REPORTS
TECHNICAL ANALYSIS WITH CITATIONS AND AUTHORITY
FORMS - agreements, contracts, trusts, tax forms, financial reports, management information reports, policies or procedures
REQUIRED ATTACHMENTS
Overview - look at the steps required and the steps performed. Are there unusual items? Are there exceptions or adverse results of the procedures performed? Find resolutions for all unusual or adverse items.
Compliance - has compliance "substantially" been met. That is no "material" adverse results?
Math Check
Proof and spell check
Theory & overview by someone not performing the procedures
Close the case and archive it.
Financial Accounting - Bookkeeping and Financial Statements
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Financial Statement Presentation
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Bookkeeping Methods - Cash, Accrual and Other
Back to Start of Financial Accounting: Bookkeeping & Financials
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Back to Start of Financial Accounting: Bookkeeping & Financials
Compliance Requirements - Requirements, Defense, Protection, Etc.
Title 1
Title 2
Title 3
Title 4
Title 5
Title 6
Compliance Checklist
Back to Start of What is required for protection, defense, etc.
Alerts and Dangers
Action Checklist
Alerts & Dangers - Risks
Asset Protection
Your Defense
Title 5
Title 6
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Tools - Spreadsheets - Documents - Checklists - Organizers
TOOLS
Spreadsheets & Math
Spreadsheets & Computations
Back to Start of Spreadsheets & Math
Sample Agreements - Trusts - Etc.
Title 1
Title 2
MODEL
SIMPLIFIED EMPLOYEE PENSION PLAN
Setting Up a SEP
There are three basic steps in setting up a SEP.
- You must execute a formal written agreement to provide benefits to all eligible employees.
- You must give each eligible employee certain information about the SEP.
- A SEP-IRA must be set up by or for each eligible employee.
The following document
is a model simplified employee pension plan. At the end of a document is a
sample salary reduction simplified employee plan, which is a SEP with a salary
reduction feature tacked on. You
can modify this form to meet your specific circumstances.
Of course, if you intend to use this plan, you should make sure that your
attorney reviews it and approves any changes you make.
Formal written agreement. You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. However, see When not to use Form 5305-SEP, later.
If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Keep the original form. Do not file it with the IRS. Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. See the Form 5305-SEP instructions for details.
|
When not to use Form 5305-SEP |
You
cannot use Form 5305-SEP if any of the following apply.
|
Individually
designed plans must be drafted by an attorney to meet the employer's specific
needs. These SEPs carry with them the establishment costs of attorney's fees and
a certain amount of risk in that the IRS will not issue letter rulings on
individually designed SEPs. However, letter rulings may be obtained concerning
the plan's qualifications (Rev. Proc. 87-50). Many of the advantages inherent in
the model and prototype SEP are diminished with the individually designed SEP
such as the ease with which the plans can be established, the low cost of start-
up, and administration. Unfortunately, for employers who already have a
qualified plan or have had a defined benefit plan in the past, this is the only
type of SEP available.
Sample:
TABLE
OF CONTENTS
Article
I.
Purpose
II.
Definitions and Construction
Definitions
Principal Entities
Determination of Contribution and Other Definitions
Construction
III.
Participation and Notifications
Participation
Notifications
IV.
Contributions
Contributions by Participants
Excess Contributions
Maximum Employer Contributions
V.
Benefits
VI.
Administration
Fiduciary Responsibility
Appointment of Committee
Claims Procedure
Records and Reports
Other Committee Powers and Duties
Rules and Decisions
Notifications and Forms
Indemnification of the Committee
VII. Employer
Rights
Nonguarantee of Employment
Action by Employer
Choice of Simplified Employee Pension
Amendments
Successor Employer
Right to Terminate
SEP allowing Salary Reduction
MODEL
SIMPLIFIED EMPLOYEE PENSION PLAN
Article
I. Purpose
Effective as of [date plan goes into effect], to enable eligible
employees to establish individual retirement accounts or individual retirement
annuities [company name] (the "Employer") decided to adopt the
Simplified Employee Pension Plan for Employees of [company name] (the
"Plan"). The Plan is intended to meet the requirements of Section
408(k) of the Internal Revenue Code of 1986 (the "Code") as from time
to time amended.
The provisions of the Plan, as set forth herein, shall only apply to an
eligible employee who is in the active employ of the Employer on or after [date
of eligibility].
Article
II. Definitions and Construction
2.1 Definitions: Where the following words and phrases
appear in this Plan, they shall have the respective meanings set forth in this
Article, unless the context clearly indicates to the contrary.
2.2 Principal Entities:
(a) Plan: The Simplified Employee Pension Plan for Employees for
[company name], the Plan set forth herein, as amended from time to time.
(b) Simplified Employee Pension: The retirement savings vehicle
chosen by a Participant for deposit of contributions made hereunder by the
Employer. Such retirement savings vehicle may only be either an approved
Individual Retirement Account under Section 408(a) of the Code or an approved
Individual Retirement Annuity under Section 408(b) of the Code.
(c) Employer: [company name], a [legal status (i.e., a
corporation)] organized and existing under the laws of the State of [name of
state], or its successor or successors.
(d) Committee: The person or persons appointed pursuant to Article
VI to assist the Employer with Plan Administration in accordance with said
Article.
(e) Employee: Any person who, on or after the Effective Date, is
receiving remuneration for personal services rendered to the Employer.
(f) Participant: An Employee participating in the Plan in
accordance with the provisions of Section 3.1.
(g) Fiduciaries: The Employer and the Committee, but only with
respect to the specific responsibilities of each for Plan administration, all as
described in Section 6.1.
2.3 Determination of
Contribution and Other Definitions:
(a) Participation: The period or periods during which an Employee
participates in this Plan as determined in accordance with Section 3.1.
(b) Compensation: The total of all amounts paid to a Participant
for a given Year by the Employer for personal services and reported as wages for
purposes of federal income tax withholding on Form W-2, or substitute, less (1)
amounts paid while covered by a collective bargaining agreement which does not
provide for inclusion hereunder, (2) the cost of providing group term life
insurance in excess of the statutory amount, (3) reimbursed moving expenses, (4)
any other amount required to be reported on Form W-2 which is not direct
compensation for services performed and (5) amounts in excess of $200,000.
(c) Effective Date: [The effective date], the date on which the
provisions of this Plan became effective.
(d) Year: The 12-month period commencing on January 1 and ending
on December 31.
(e) Code: The Internal Revenue Code of 1986, as amended from time
to time.
2.4 Construction: The masculine gender, where appearing in the
Plan, shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. The words "hereof," "herein,"
"hereunder" and other similar compounds of the word "here"
shall mean and refer to the entire Plan and not to any particular provision,
Section or Article. Article and Section headings are for convenience of
reference and not intended to add to or subtract from the terms of this Plan.
Article
III. Participation and Notifications
3.1 Participation: Except for an Employee who, for the entire Year
was covered by a collective bargaining agreement which does not provide for his
inclusion hereunder, an Employee shall participate in the Plan for any Year in
which he meets the following requirements:
(a) he attains age 21 or older
(b) he has performed services for the Employer at some time during the
Year
(c) his Compensation for the Year is $300 or greater, and
(d) the given Year is preceded by a 5-year period that includes at least
three Years in each of which he has performed services for the Employer at some
time during the Year
3.2 Notifications: The Committee shall notify an Employee in
writing when he first becomes a Participant. Such notification shall include
information required to be furnished by Department of Labor regulations under 29
CFR 2520.104-49. Such notification shall also advise the Participant that he
should establish a Simplified Employee Pension and the date by which the
establishment should be accomplished. If the Participant fails to notify the
Committee of the establishment of a Simplified Employee Pension as of the
prescribed date, the Committee shall choose a Simplified Employee Pension for
such Participant and execute such forms and documents as may be necessary to
establish a Simplified Employee Pension for and on behalf of such Participant.
If the Participant's Simplified Employee Pension does not accept
contributions for the Year in which the Participant attains age 70 1/2, the
Committee shall choose a Simplified Employee Pension for such Participant, for
such Year and succeeding Years unless the Participant notifies the Committee
that he has chosen an alternate Simplified Employee Pension.
Article
IV. Contributions
NOTE: The following Section 4.1 incorporates the requirements
of Code Section 401(1)(2) regarding the permitted disparity in plan
contributions. The contribution percentage for compensation above a certain
level cannot exceed the contribution percentage on compensation below a certain
level by more than the lesser of—
(1) the contribution percentage on compensation below a certain level, or
(2) the greater of:
(a)
5.7 percent, or
(b)
the percentage equal to the portion of the rate under Code Section 3111(a) (in
effect as of the beginning of the year) which is attributable to old-age
insurance.
4.1 Employer Contributions On and After January 1, 1987: Each Year
the Employer shall determine whether or not a contribution will be made under
the Plan for that Year. If the Employer determines that a contribution will be
made for a Year, then, subject to the provisions of Section 4.4, the
contribution made on behalf of each Employee who is a Participant for that Year
shall be equal to:
(a) a percentage of Compensation, as determined by the Employer, payable
to all Participants;
(b) to the extent any contribution has not been allocated under (a)
above, an additional allocation shall be made to all Participants considering
only their compensation in excess of the social security wage base for the Year.
The percentage for any additional allocation under this Section 4.1(b) shall not
exceed the lesser of:
(i) the percentage used under Section 4.1(a) above, or
(ii) the greater of:
(A)
5.7 percent, or
(B)
the percentage equal to the portion of the rate under Code Section 3111(a) (in
effect as of the beginning of the Year) which is solely attributable to old-age
insurance.
(c) to the extent any contribution remains after the allocations under
Sections 4.1(a) and (b) above, the remainder shall be allocated to all
Participants based on their Compensation for the Year.
However,
the contribution made on behalf of any Participant for any Year may not exceed
$30,000 [*minus any Employer contribution made on the Employee's behalf pursuant
to Section 4.2]. Except to the extent provided in this Section 4.1,
contributions to any one Participant shall bear a uniform relationship to the
Compensation of each Participant receiving a contribution under this Plan.
The $30,000 limitation referred to above shall be increased in accordance
with the increases made to the limit defined under Code Section 415(c)(1)(A)
pursuant to Code Section 415(d).
The contributions of the Employer made on behalf of each Participant
shall be paid directly to, and deposited in, the Simplified Employee Pension of
each such Participant and shall be paid no later than 3 1/2 months after the
close of the Year.
NOTE: *The bracketed portion above would be deleted if the
Employer does not want to provide for a salary reduction feature in the plan.
Section 4.2 below does not provide for Employee Contributions. The
provision does allow the Participant to make his or her own IRA Contribution to
the Accounts.
4.2 Contributions by Participants: Participants are not
permitted to make contributions under this Plan. However, the Simplified
Employee Pension chosen by the Participant may allow for additional
contributions by the Participant, but such contributions shall not be deemed to
be made under this Plan.
If the Committee chooses a Simplified Employee Pension for the
Participant pursuant to the provisions of Section 3.2, such Simplified Employee
Pension shall not provide for Participant contributions thereunder.
NOTE: The following Section 4.3 deals only with excess
contributions from a SEP which does not contain a salary reduction feature. In
Appendix A, Section 4.6 provides for returning "excess contributions"
which arise both under the salary reduction arrangement and under the Employer's
nonelective contributions to the Plan.
NOTE: For self-employed individuals contributing to their own
SEP, special rules apply in computing the 15% limitation mentioned in Section
4.3(a). For determining the percentage limit on contributions, a self-employed
individual's compensation is his or her "net earnings" from
self-employment. For a self-employed individual, net earnings must take into
account the deduction for contributions to the individual's SEP. Therefore, the
amount of the SEP deduction and the net self-employment earnings are
interdependent. In effect, this means that for self-employed individuals, the
maximum contribution is 13.0435% of net earnings without taking into account SEP
contributions.
4.3 Excess Contributions: An excess Employer contribution on
behalf of a Participant shall exist for a Year if it exceeds one of the
following:
(a) the lesser of $15,000 or 15% of the Participant's Compensation for
such Year ($30,000 for Years beginning on and after January 1, 1984), or
(b) the amount determined by the Employer to be contributed for the
Participant for such Year pursuant to the provisions of Section 4.1.
Except as provided by the remaining provisions of this Section, if an
excess contribution is made by the Employer on behalf of a Participant, such
excess shall be used as payment or partial payment of the Employer's
contribution to such Participant's Simplified Employee Pension for the next
succeeding Year.
If, by the April 8th immediately following the Year for which an excess
contribution is made, it cannot be determined by the Employer whether the excess
contribution will cause yet another excess contribution for the current Year,
then the Committee shall notify the Participant that an excess contribution has
been made on his behalf.
Upon receipt of notification of an excess contribution, the Participant
may either withdraw the excess contribution prior to the due date (not including
extensions) for filing his federal tax return for the Year for which the excess
contribution was made or he may treat it as a Participant contribution if his
Simplified Employee Pension allows for such treatment. If the Participant does
not withdraw the excess contribution within such time period, he shall be
responsible to pay the 6% penalty tax, if any, associated with such excess
contribution until such time as the excess is eliminated by withdrawal or by
treating it as a Participant contribution to his Simplified Employee Pension, if
allowed. If such withdrawal is subject to a 10% federal penalty tax for early
withdrawal, the Participant shall be responsible to pay such tax.
NOTE: The Internal Revenue Service provides Forms 5305-SEP and
5305A-SEP for the adoption of a Simplified Employee Pension plan. However, these
forms can not be used if the adopting employer ever maintained a defined benefit
plan, even if the defined benefit plan was terminated. The following Section is
intended to allow a self-employed individual (or other employer) who maintained
a defined benefit plan to also set up a SEP.
4.4 Maximum Employer Contributions: Notwithstanding anything
contained herein, the Employer contribution to be made on behalf of any
Participant for any Year shall be reduced to the extent necessary to prevent
disqualification of the Plan under Section 415 of the Code.
If the Participant was a participant at any time in [Name of Plan]
Defined Benefit Plan which was maintained by the Employer prior to its
termination on [Date], the sum of his Defined Benefit Plan Fraction and his
Defined Contribution Plan Fraction for any Year may not exceed 1.0. The
"Defined Benefit Plan Fraction" for any Year is a fraction, the
numerator of which is the Participant's projected annual benefit under the [Name
of Plan] Defined Benefit Plan (determined at the close of the Year) and the
denominator of which is the Participant's projected annual benefit (determined
as of the close of the Year) if such plan provided the maximum benefit allowable
under Section 415(b) of the Code. The "Defined Contribution Plan
Fraction" for any Year is a fraction, the numerator of which is the sum of
the Employer's contribution to be made under Section 4.1 for such Participant
for such Year, plus the Employer's contributions made under this Plan for the
Participant for all prior Years and the denominator of which is the maximum
amount of annual contributions which could have been made under Section 415(c)
of the Code for such Year and for all prior Years of such Participant's
employment (assuming for this purpose that said Section 415(c) had been in
effect during such prior Years). If the Participant's Defined Benefit Plan
Fraction for any Year plus the Defined Contribution Plan Fraction for such Year
exceeds 1.0, then the Employer's contribution for the Participant for such Year
shall be reduced to the extent necessary to eliminate the excess. The Committee
shall advise affected Participants of any limitation on their Employer
contributions hereunder required by this Section.
Article
V. Benefits
NOTE: Unlike a qualified retirement plan, a participant can
withdrawal SEP contributions without having to show a financial hardship. The
Participant would owe federal and possibly state income taxes, plus, unless
certain conditions are satisfied, a 10% additional income tax.
All contributions
made to this Plan by the Employer on behalf of a Participant shall be fully
vested and nonforfeitable at all times.
The right of a
Participant to withdraw amounts contributed by the Employer on his behalf shall
not in any way be restricted by the Employer, the Plan, or the Simplified
Employee Pension chosen for a Participant by the Committee.
If a Participant does
withdraw amounts from his Simplified Employee Pension, the Participant shall be
responsible to pay the 10% penalty tax, if any, which may be associated with the
Participant's withdrawal.
In the event of a
Participant's death, disposition of the Participant's Simplified Employee
Pension shall be governed by the terms of his Simplified Employee Pension.
Article
VI. Administration
6.1 Fiduciary Responsibility: The Fiduciaries shall have only
those specific powers, duties, responsibilities and obligations as are
specifically given them under this Plan. The Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1 [*
and Section 4.2], and shall have the sole authority to appoint and remove
members of the Committee, to choose the Simplified Employee Pension that will be
utilized for Participants who either fail to choose their own or choose a
Simplified Employee Pension that will not accept certain contributions made
hereunder, and to amend or terminate this Plan. The Committee shall have the
sole responsibility for the administration of this Plan, which responsibility is
specifically described in this Plan.
*
Add bracketed phrase if plan contains a salary reduction agreement.
6.2 Appointment of Committee: The Plan shall be administered by a
Committee consisting of at least one person who shall be appointed by and serve
at the pleasure of the Board of Directors of the Employer. All usual and
reasonable expenses of the Committee shall be paid by the Employer. Any members
of the Committee who are Employees shall not receive compensation with respect
to their services for the Committee.
6.3 Claims Procedure: The Committee shall make all determinations
as to the eligibility of any Employee for Plan Participation or an Employer
contribution. Any denial by the Committee of the claim for benefits under the
Plan by an Employee shall be stated in writing by the Committee and delivered or
mailed to the Employee; and such notice shall set forth the specific reasons for
the denial, written to the best of the Committee's ability in a manner that may
be understood without legal or actuarial counsel. In addition, the Committee
shall afford a reasonable opportunity to any Employee whose claim for benefits
has been denied for a review of the decision denying the claim.
6.4 Records and Reports: The Committee shall exercise such
authority and responsibility as it deems appropriate in order to comply with
governmental regulations relating to records of Employer contributions made
hereunder, notifications to Participants, and reports, if any, to the Internal
Revenue Service or to the Department of Labor.
6.5 Other Committee Powers and Duties: The Committee shall have
such duties and powers as may be necessary to discharge its duties hereunder,
including, but not by way of limitation, the following:
(a) to construe and interpret the Plan and decide all questions of
eligibility;
(b) to prepare and distribute, in such manner as the Committee determines
to be appropriate, information explaining the Plan;
(c) to receive from the Employer and from Participants such information
as shall be necessary for the proper administration of the Plan;
(d) to furnish the Employer, upon request, such annual reports with
respect to the administration of the Plan as are reasonable and appropriate;
(e) to appoint or employ individuals to assist in the administration of
the Plan and any other agents it deems advisable, including legal counsel;
(f) to follow the Employer's choice of Simplified Employee Pension when
it is the responsibility of the Committee hereunder to establish a Simplified
Employee Pension for a Participant.
The Committee shall have no power to add to, subtract from or modify any
of the terms of the Plan, or to change or add to any benefits provided by the
Plan, or to waive or fail to apply any requirements of eligibility under the
Plan.
6.6 Rules and
Decisions: The Committee may adopt
such rules as it deems necessary, desirable or appropriate. All rules and
decisions of the Committee shall be uniformly and consistently applied to all
Participants in similar circumstances. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Participant, the Employer or the legal counsel of the Employer.
6.7 Notifications and
Forms: The Committee may require a
Participant to complete and file with the Committee any and all forms approved
by the Committee, and to furnish all pertinent information requested by the
Committee. The Committee may rely upon all such information so furnished it,
including the Participant's current mailing address.
6.8 Indemnification
of the Committee: The Committee and
the individual members thereof shall be indemnified by the Employer against any
and all liabilities arising by reason of any act or failure to act made in good
faith pursuant to the provisions of the Plan, including expenses reasonably
incurred in the defense of any claim relating thereto.
Article
VII. Employer Rights
7.1 Nonguarantee of
Employment: Nothing contained in this
Plan shall be construed as a contract of employment between the Employer and any
Employee, or as a right of any Employee to be continued in the employment of the
Employer, or as a limitation of the right of the Employer to discharge any of
its Employees, with or without cause.
7.2 Action by Employer: Any action by the Employer under this Plan
may be by any person or persons duly authorized to take such action.
7.3 Choice of Simplified Employee Pension: The Employer
shall choose the particular Simplified Employee Pension which will be utilized
by the Committee for establishing individual Simplified Employee Pensions for
Participants who fail to do so or for Participants whose Simplified Employee
Pensions do not accept contributions made by the Employer hereunder.
The Simplified Employee Pension chosen by the Employer shall provide for
the following:
(a) no restrictions on withdrawals
(b) acceptance of Employer contributions from and after the Year in which
the Participant attains age 70 1/2
(c) no contributions by a Participant
(d) no rollover contributions, as defined in the Code, by a Participant,
and
(e) such other terms and conditions as may be chosen by the Employer.
7.4 Amendments: The Employer reserves the right to make from time
to time any amendment or amendments to this Plan which do not cause any part of
Employer contributions hereunder to be used for, or diverted to, any purpose
other than the exclusive benefit of Participants, provided however, that the
Employer may make any amendment it determines necessary or desirable, with or
without retroactive effect, to comply with the Code or any other federal law and
regulations issued pursuant thereto.
7.5 Successor Employer: In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan will be continued by the successor; and, in that event, such successor
shall be substituted for the Employer under the Plan. The substitution of the
successor shall constitute an assumption of Plan liabilities by the successor
and the successor shall have all of the powers, duties and responsibilities of
the Employer under the Plan.
7.6 Right to Terminate: The Plan is intended to be permanent but
the Employer reserves the right to terminate the Plan at any time. In the event
of the dissolution, merger, consolidation, or reorganization of the Employer,
the Plan shall terminate unless it is continued by a successor to the Employer
in accordance with Section 7.5.
SEP
ALLOWING SALARY REDUCTION
The following are substitute provisions for expanding the SEP to allow
for employer contributions pursuant to an employee's salary reduction
arrangement under Code Section 408(k). These provisions are only available if
the plan satisfies two requirements:
1. At least 50 percent of the employees eligible to participate must be
participating in the salary reduction arrangement; and
2. The SEP must not have been maintained for more than 25 employees at
any time during the preceding year.
The
definitions below should be inserted into Section 2.3 of the plan if the
participants are offered a salary reduction arrangement.
"(b) Tax-Deferred Savings Account: The account maintained for
a Participant to record tax-deferred savings contributions made on his behalf
and adjustments relating thereto.
(c) Compensation: The total of all amounts paid to a Participant
by the Employer for personal services on a Plan Year basis, including all
salaries, wages, bonuses, commissions, declared tips and premium compensation
for overtime work, excused absence and vacation pay, before any reductions for a
Participant's elections under Code Sections 125, 129 and 408(k)(6) and excluding
deferred income, income attributable to Employer-provided automobiles, moving
expense reimbursements, sales incentive bonuses, tips not allocated and any
other form of compensation. Effective for Plan Years beginning after December
31, 1988, this Plan shall not take into consideration a Participant's
Compensation to the extent it exceeds $200,000, as indexed under Code Section
415(d).
(d) Net Compensation: The Compensation actually received by a
Participant for any period after reduction for tax-deferred savings
contributions and for contributions under Code Sections 125 and 129 for such
period. Effective for Plan Years beginning after December 31, 1988, this Plan
shall not take into consideration a Participant's Net Compensation to the extent
it exceeds $200,000, as indexed under Code Section 415(d)."
The following sections should be inserted into the plan if the employer
meets the criteria above and wishes to provide a salary reduction arrangement.
4.2 Salary Reduction Arrangement: A salary reduction arrangement
represents an agreement by a Participant with the Employer to accept a reduction
in Compensation in consideration of a contribution to the Plan by the Employer
on the Participant's behalf in the same amount.
Subject to the limitations of Section 4.5, a Participant may elect to
enter into such an agreement with the Employer by filing a written election with
the Committee specifying the percentage of his Compensation he wishes to be
contributed by the Employer as a tax-deferred savings contribution from and
after [date]. Such amount may be any amount of the Participant's Compensation,
but may not be less than 1% nor greater than 10% (in increments of 1%) of his
Compensation in any Plan Year; provided that, in no event shall such amount be
greater than $7,000 (indexed in accordance with Code Section 402(g)(5)) in any
calendar year.
Subject to the provisions of Section 4.5, an election shall remain in
force until changed in writing by a Participant on a form provided by the
Committee.
As of the Effective Date or any January 1 or July 1 or after the
Effective Date, a Participant may elect to (a) commence, (b) resume, (c)
discontinue contributions, or (d) increase the percentage amount of any future
tax-deferred savings contributions upon written election filed with the
Committee no later than the 15th day of the month prior to such effective date.
A Participant may not change his election with respect to tax-deferred
contributions already made by payroll deduction.
All tax-deferred savings contributions shall be made by payroll
deduction.
All tax-deferred savings contributions shall be credited to the
Participant's Tax-Deferred Savings Account and shall be 100% vested and
nonforfeitable at all times.
4.5 Limitations on
Tax-Deferred Savings Contributions: The
Employer may limit, revoke or amend its agreement to make tax-deferred
contributions under Section 4.2 on behalf of any Participant at any time, but
only if it determines that such limitation, revocation or amendment is necessary
under the following circumstance:
(a) in the case of tax-deferred savings contributions, to ensure that the
discrimination tests of Section 408(k)(6)(A) of the Internal Revenue Code
governing permissible levels of tax-deferred savings contributions are met for
such Plan Year by the following test:
The Actual Average Percentage of the tax-deferred savings contributions
of the Highly-Compensated Employees eligible to participate is not more than
1.25 times the Actual Average Percentage of the tax-deferred savings
contributions for all other Employees eligible to participate.
If a limitation or amendment becomes necessary pursuant to paragraph (a)
above, such limitation or amendment will be first applied to the Participant who
is the Highly-Compensated Employee electing the highest percentage of
tax-deferred savings contributions pursuant to Section 4.2 until the test in (a)
is met or until such Participant's election pursuant to Section 4.2 is reduced
to the same percentage level as the Participant who is the Highly-Compensated
Employee electing the second highest percentage of tax-deferred savings
contributions pursuant to Section 4.2. If further limitations are required, then
both such Participants' percentage elections shall be reduced until the test in
(a) is met or until the two Participants' elections pursuant to Section 4.2 are
reduced to the same percentage level as the Participant who is the
Highly-Compensated Employee electing the third highest percentage of
tax-deferred savings contributions pursuant to Section 4.2, and such limitations
or amendments shall continue to be made in a similar manner from the
Participants who are Highly-Compensated Employees making the highest percentage
elections to the lowest until the test in (a) is satisfied.
If a Participant is prevented from making a portion of his tax-deferred
savings contributions due to a permissible limitation, revocation or amendment
by the Employer, such portion shall be considered taxable income to the
Participant in the tax year for which the contribution was made, and after
appropriate taxes have been withheld shall be returned to the Participant prior
to its contribution to the Trust Fund.
For purposes of this Section 4.5, the following meanings shall attach.
The "Actual Average Percentage" for a specified group of Employees for
a Plan Year shall be the average of the ratios (calculated separately for each
Employee in such group) of the amount of Employer contributions actually paid
over to the Trust on behalf of each such Employee, pursuant to a salary
reduction arrangement in effect with the Employer under Code Section 408(k), for
each Plan Year to the Employee's Net Compensation for such Plan Year. The term
"Net Compensation" shall be as defined in Section 2.3(d) above;
however, the Employer shall have the right to increase the Employee's Net
Compensation by the amount of any Employee salary deferrals under Code Sections
125, 129 and 408(k)(6), or to use such alternate definition of compensation as
the Internal Revenue Service may provide by regulation under Code Section
414(s). The term "Highly-Compensated Employee" shall have the same
meaning as that provided under Code Section 414(q) and regulations thereunder.
4.6 Return of Excess
Elective Deferrals: If, during any
taxable year of the Participant, the total amount of the Participant's
tax-deferred savings contributions to all qualified simplified employee pensions
and any other plan subject to the limitation under Code Section 402(g) exceeds
$7,000, as indexed, then the amounts in excess of $7,000, as indexed, are to be
included in the Participant's gross income for the taxable year to which the
deferral relates. Notwithstanding anything in this Plan to the contrary, if
prior to March 1 following the close of the Participant's taxable year, the
Participant notifies the Plan that he requests a return of part or all of his
prior Plan Year's tax-deferred savings contributions which exceed the $7,000
limit (and any income allocable to such amounts) pursuant to Code Section 402(g)
and the regulations thereunder, the Plan may (but is not required to), return
(not later than the first April 15 after the Participant's taxable year ends)
the amount of the Participant's tax-deferred savings contributions with
allocable income, which the Participant requested to be returned. The
Participant's request will be limited solely to tax-deferred savings
contributions deemed made in the immediately prior taxable year. The Committee
may establish such rules and regulations as it deems necessary to carry out the
effect of this Section 4.6, and will apply its rules and regulations uniformly
with respect to each Participant.
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Required Reports
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