[Code of Federal Regulations]

[Title 29, Volume 9]

[Revised as of July 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 29CFR2520.104-49]



[Page 450-451]

 

                             TITLE 29--LABOR

 

 CHAPTER XXV--EMPLOYEE BENEFITS SECURITY ADMINISTRATION, DEPARTMENT OF 

                                  LABOR

 

PART 2520_RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE--Table of 

Contents

 

    Subpart D_Provisions Applicable to Both Reporting and Disclosure 

                              Requirements

 

Sec.  2520.104-49  Alternative method of compliance for certain 

simplified employee pensions.



    Under the authority of section 110 of the Act, the provisions of 

this section are prescribed as an alternative method of compliance with 

the reporting and disclosure requirements set forth in part 1 of title I 

of the Act for a simplified employee pension (SEP) described in section 

408(k) of the Internal Revenue Code of 1954 as amended, except for:



A SEP that is created by proper use of Internal Revenue Service Form 

5305-SEP, or; a SEP in connection with which the employer who 

establishes or maintains the SEP selects, recommends or influences its 

employees to choose the IRAs into which employer contributions will be 

made and those IRAs are subject to provisions that prohibit withdrawal 

of funds by participants for any period of time.

    (a) At the time an employee becomes eligible to participate in the 

SEP (whether at the creation of the SEP or thereafter) or up to 90 days 

after the effective date of this regulation, whichever is later, the 

administrator of the SEP (generally the employer establishing or 

maintaining the SEP) shall furnish the employee in writing with:

    (1) Specific information concerning the SEP, including:

    (i) The requirements for employee participation in the SEP,

    (ii) The formula to be used to allocate employer contributions made 

under the SEP to each participant's individual retirement account or 

annuity (IRA),

    (iii) The name or title of the individual who is designated by the 

employer to provide additional information to participants concerning 

the SEP, and

    (iv) If the employer who establishes or maintains the SEP selects, 

recommends or substantially influences its employees to choose the IRAs 

into which employer contributions under the SEP will be made, a clear 

explanation of the terms of those IRAs, such as the rate(s) of return 

and any restrictions on a participant's ability to roll over or withdraw 

funds from the IRAs, including restrictions that allow rollovers or 

withdrawals but reduce earnings of the IRAs or impose other penalties.

    (2) General information concerning SEPs and IRAs, including a clear 

explanation of:

    (i) What a SEP is and how it operates,

    (ii) The statutory provisions prohibiting discrimination in favor of 

highly compensated employees,

    (iii) A participant's right to receive contributions under a SEP-and 

the allowable sources of contributions to a SEP-related IRA (SEP-IRA),

    (iv) The statutory limits on contributions to SEP-IRAs,

    (v) The consequences of excess contributions to a SEP-IRA and how to 

avoid excess contributions,

    (vi) A participant's rights with respect to contributions made under 

a SEP to his or her IRA(s),

    (vii) How a participant must treat contributions to a SEP-IRA for 

tax purposes,

    (viii) The statutory provisions concerning withdrawal of funds from 

a SEP-IRA and the consequences of a premature withdrawal, and

    (ix) A participant's ability to roll over or transfer funds from a 

SEP-IRA to another IRA, SEP-IRA, or retirement bond, and how such a 

rollover or transfer may be effected without causing adverse tax 

consequences.



[[Page 451]]



    (3) A statement to the effect that:

    (i) IRAs other than the IRA(s) into which employer contributions 

will be made under the SEP may provide different rates of return and may 

have different terms concerning, among other things, transfers and 

withdrawals of funds from the IRA(s),

    (ii) In the event a participant is entitled to make a contribution 

or rollover to an IRA, such contribution or rollover can be made to an 

IRA other than the one into which employer contributions under the SEP 

are to be made, and

    (iii) Depending on the terms of the IRA into which employer 

contributions are made, a participant may be able to make rollovers or 

transfers of funds from that IRA to another IRA.

    (4) A description of the disclosure required by the Internal Revenue 

Service to be made to individuals for whose benefit an IRA is 

established by the financial institution or other person who sponsors 

the IRA(s) into which contributions will be made under the SEP.

    (5) A statement that, in addition to the information provided to an 

employee at the time he or she becomes eligible to participate in a SEP, 

the administrator of the SEP must furnish each participant:

    (i) Within 30 days of the effective date of any amendment to the 

terms of the SEP, a copy of the amendment and a clear written 

explanation of its effects, and

    (ii) No later than the later of:

    (A) January 31 of the year following the year for which a 

contribution is made,

    (B) 30 days after a contribution is made, or

    (C) 30 days after the effective date of this regulation



written notification of any employer contributions made under the SEP to 

that participant's IRA(s).

    (6) In the case of a SEP that provides for integration with Social 

Security

    (i) A statement that Social Security taxes paid by the employer on 

account of a participant will be considered as an employer contribution 

under the SEP to a participant's SEP-IRA for purposes of determining the 

amount contributed to the SEP-IRA(s) of a participant by the employer 

pursuant to the allocation formula,

    (ii) A description of the effect that integration with Social 

Security would have on employer contributions under a SEP, and

    (iii) The integration formula, which may constitute part of the 

allocation formula required by paragraph (a)(1)(ii) of this section.

    (b)(1) The requirements of paragraphs (a)(1)(i), (ii), (iii) and 

(a)(6)(i) of this regulation may be met by furnishing the SEP agreement 

to participants, provided that the SEP agreement is written in a manner 

reasonably calculated to be understood by the average plan participant.

    (2) The requirements of paragraph (a)(1)(iv) of this regulation may 

be met through disclosure materials furnished by the financial 

institution in which the participant's IRA is maintained, provided the 

materials contain the information specified in such paragraph.

    (c) No later than the later of:

    (1) January 31 of the year following the year for which a 

contribution is made,

    (2) 30 days after a contribution is made, or

    (3) 30 days after the effective date of this regulation



the administrator of the SEP shall notify a participant in the SEP in 

writing of any employer contributions made under the SEP to the 

participant's IRA(s).

    (d) Within 30 days of the effective date of any amendment to the 

terms of the SEP, the administrator shall furnish each participant a 

copy of the amendment and a clear explanation in writing of its effect.



[46 FR 1264, Jan. 6, 1981]