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Posted by kastnna on June 29, 2007, 6:07 pm
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What happens if the IRS deems a company retirement plan to
be "out of compliance"?
Today, I met a business owner that still has an old SARSEP
(established before Jan. 1, 1997). The SARSEP has a
stockpile of compliance issues:
1. The company has anywhere between 20 and 30 eligible
employees at any one time (its a car dealership with a high,
cyclicle turnover). The limit for SARSEPs is 25. Some months
he may have more and some months he may have less.
2. He doesn't have 50% participation. The number is closer
to 40%, but with only 25 employees, its pretty easy to get
participation up 10%.
3. He matches a % of what the participants put in, but does
not contribute on behalf of eligible employees that do not
currently contribute themselves. SARSEPs only allow for
employer nonelective contributions to ALL eligible
employees.
I obviously suggested he look more at 401(k)s, SIMPLEs, etc,
that will better match his goals, but he is reluctant to
change.
What are the consequences if the IRS discovers his SARSEP?
What measures does the IRS take once discovered
(process-wise) and how do the proceedings commence?
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