Chapter 4 — Reports

Employers who adopt a Model SEP using IRS Form 5305-SEP must furnish each participant with:

• a copy of the completed Form 5305-SEP,
• the questions and answers printed on the form,
• a statement each year showing any contribution made to the participant’s IRA or annuity, and
• a copy of any plan amendments within 30 days of their effective date.

The employer should retain the original Form 5305-SEP and any amendments in its business records. These simple disclosures satisfy both IRS and Department of Labor requirements for Model SEPs — making this a very economical means of employee communication compared to having conventional summary plan descriptions (SPDs) prepared by outside professionals.

Employers who execute a Non-Model SEP agreement (i.e., do not use Form 5305-SEP) face more extensive disclosure requirements. The Department of Labor requires these employers to provide eligible employees with information regarding:

• the requirements for employee participation in the SEP,
• the formula under which employer contributions will be allocated among participants’ IRAs,
• the name or title of the individual designated by the employer to provide additional information about the SEP and employer contributions, and
• if the employer selects or substantially influences the choice of IRA into which contributions will be made — the terms of those IRAs.

The first three items may be satisfied by providing participants with the non-model SEP agreement itself, provided it is written in a manner calculated to be understood by the average plan participant. The fourth item is typically met through disclosure materials furnished by the financial institution maintaining the participant’s IRA.

Administrators of non-model SEPs must also provide participants with general information about SEPs and IRAs, including:

• what a SEP is and how it operates,
• statutory provisions prohibiting discrimination in favor of highly paid employees,
• a participant’s right to receive contributions under a SEP and the allowable sources of contributions,
• the statutory limit on contributions to SEP-IRAs,
• the consequences of excess contributions and how to avoid them,
• how contributions must be treated for tax purposes,
• statutory provisions concerning withdrawals and the consequences of premature withdrawal,
• a participant’s rights regarding SEP contributions made to their IRA, and
• a participant’s ability to roll over or transfer funds from a SEP-IRA to another IRA or qualified plan, and how to do so without adverse tax consequences.

If the employer selects or substantially influences the choice of IRAs into which SEP contributions are deposited, and those IRAs restrict or prohibit participant withdrawals for any period of time, the employer is subject to the full reporting and disclosure requirements under ERISA — the same extensive obligations that apply to traditional qualified plans.

Employers can avoid triggering full ERISA disclosure by meeting all three of the following conditions:

• the employer does not select, recommend, or otherwise influence any participant’s choice of available investment options under the IRAs,
• the IRAs available to participants provide meaningful investment options and do not restrict withdrawals, and
• all other general SEP and IRA disclosures listed above are satisfied.

Custodians of IRA accounts — such as banks, credit unions, brokerage firms, and insurance companies — have their own independent reporting obligations:

• Annual contribution reporting: Custodians must notify the IRS of all contributions made to each IRA account during the year.
• Distribution reporting: If withdrawals are taken from the IRA, the custodian must issue the account holder a Form 1099-R reporting the distribution amount and tax classification. This information is also filed directly with the IRS.

These custodian-level reporting requirements apply regardless of whether the IRA is a standard traditional IRA, a SEP-IRA, or a SARSEP-IRA, and exist independently of any employer disclosure obligations.