I worked for a 501 c 3 organization that developed a SEP program in May 1997. Each year the employer contribution was based on total annual salaries/wages. In 2006 the employer contribution excluded elective deferrals. I have reviewed IRS regulations and could not find any reference as to whether employers can/cannot exclude elective deferrals in their calculation of the employer contribution to the SEP. I understand that SAR-SEP programs allow employers to exclude elective deferrals. However, SAR-SEP programs were discontinued - no new programs could be set up after
12/31/96 - so this is a SEP program. The Adoption Agreement is entitled, "SEP/SAR-SEP Adoption Agreement" and it is difficult to ascertain whether the text refers to SAR-SEPs, SEPs, or both. Compensation is defined as: "The total wages, salaries, fees for professional services and other taxable remuneration without regard to whether or not an amount is paid in cash, paid to a Participant from the Employer which are includable in the Participant's gross income for the tax year, as defined within the meaning of Code 415 (c) (3). Compensation does not include: (a) contributions to this plan or any other plan of deferred compensation; and..... Does the above statement mean that the employer can exclude elective deferrals from SEP contributions? Several employees had payroll deductions to 403 b plans, and it is these deductions that have been excluded from the SEP employer contribution. One accountant told me: "It appears that the agreement says that the savings amount and the employer contribution cannot exceed 15% of your compensation, so compensation is defined as including the savings election portion too." However, he suggested that I post this question on this forum to obtain an expert opinion. I would be very grateful for any advice.
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