| Simplified employee pension (SEP) plans make it | | | | reducing costs to the employer. |
| possible for small businesses to provide retirement | | | | This salary-reduction feature enables a SEP to |
| benefits with lower costs and less reporting | | | | work much like a 401(k) plan. No new SARSEP |
| requirements than other qualified retirement plans. | | | | plans are allowed to be established after 1996, but |
| In fact, SEPs offer some attractive benefits for | | | | if you have one, you may continue to make |
| employers and employees alike. | | | | contributions to the existing plan. |
| How Do SEPs Work? | | | | Advantages |
| A simplified employee pension plan is essentially | | | | SEPs were designed to provide a number of |
| nothing more than a group of individual retirement | | | | advantages. |
| accounts maintained for employees. | | | | There is a significantly lower setup cost to the |
| Under a typical SEP plan, the employer establishes | | | | employer than regular pension or profit-sharing |
| IRAs for all participating employees. The employer | | | | plans. The reporting and record-keeping |
| then contributes to the IRAs, subject to the | | | | requirements are simpler. |
| contribution limits for SEPs -- not IRAs. Employer | | | | For employees, SEPs allow significantly higher |
| contributions are limited to $40,000 per year | | | | contribution limits than regular IRAs. This enables |
| without being counted as current income for the | | | | employees to accumulate more for retirement. |
| employee. | | | | The retirement benefits in a SEP are fully vested |
| SEP plans provide an effective retirement planning | | | | as soon as they are contributed making the SEP |
| option for employees. They also provide the | | | | completely portable. Employees who change |
| employer with a legal and effective tax shelter. | | | | employers can roll their SEP balances into an IRA |
| Salary-Reduction Option | | | | or transfer them to a retirement plan sponsored |
| Employees can fund a SEP through a pre-tax | | | | by their new employer. |
| salary reduction. Under a salary-reduction SEP, or | | | | Simplified employee pensions have the ability to |
| SARSEP, employees can elect to defer up to | | | | provide significant retirement benefits to |
| $11,000 of their salary to the plan (as of 2002). | | | | employees while minimizing setup and |
| Employee funding has the added benefit of | | | | administrative costs for employers. |