Question

46. Shock Limited just established a simplified employee pension (SEP) plan for the benefit of its employees. The company has more than 500 employees, 60% of whom are highly compensated. This year, Shock contributed 6% of each eligible employee's salary to the SEP plan. Several of the employees of the company are unfamiliar with the provisions of SEP plans and have come to you requesting information. Which of the following statements regarding the basic provisions of SEP plans are CORRECT? 1. Employees can roll over money that is distributed from a SEP plan into a different IRA within 60 days without withholding or penalty as long as it is not a required minimum distribution. 2. Contributions must be made for any employee, age 21 or over, who has performed services for the company in 3 of the past 5 years and has earned at least $600. 3. Employer contributions are 100% vested immediately. 4. A SEP plan may exclude members of unions if the unions have their own retirement plan. A. 1, 2, 3 and 4 B. 2, 3 and 4 C. 1, 2 and 3 D. 1, 3 and 4

Answer 1

Solution: Option-A

Explanation: SEP, also termed as simplified employee pension refers to the retirement plan that a self-employed individuals or an employer can establish. The provision includes the employer contributions to be 100% vested immediately. When the unions have their own retirement plan SEP plan would not include the members of unions. The employees are allowed to roll money which is distributed from a SEP into a different IRA in a period of 60 days without penalty or withholding if it is not a required minimum distribution. The contributions should be by employee who at the age 21 or over.