The intent of the 5305-SEP form is to establish an agreement between the employer and their employees under a simplified employee pension (SEP) plan. This form is not filed with the IRS, but acts as the SEP plan that governs the terms and conditions of the SEP arrangement. Because this form is not filed with the IRS (an employer simply retains it for their records), the form may contain outdated IRS information in regards to eligibility limits. The document has three options that the employer can select in order to define eligibility rules for their retirement plan:
Employee Age - The employer can specify the minimum age of the employee in order to define eligibility for this employer provided SEP plan, as long as eligible employees who have reached age 21 are not excluded from participating in accordance with IRS rules. The employer is permitted make the age limit less restrictive and can allow eligible employees under age 21 to participate in the plan.
Years of Service - The employer can specify the minimum years of service in order to define eligibility for this employer provided SEP. Between 0 and 3 years of service is the acceptable range. 0 years of service can be chosen to include any new employee if other criteria are met. 3 years of service is defined as the maximum years of service to not allow an individual to participate in the benefit as defined by the IRS.
Minimum Compensation - The employer can specify the minimum employee compensation in order to define eligibility for this employer provided SEP. Per IRS rules, for 2015 or 2016, an employer must include in the SEP employees who receive at least $600 of compensation throughout the calendar year. Employers have the option to include employees who receive less than $600 of compensation throughout the calendar year.