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:
- 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.
- 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%.
- 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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