As the name suggests, a Simplified Employee Pension (SEP) is simple to implement and simple to operate. SEPs have fewer administrative requirements and lower operating costs than many other qualified plans. They are also exempt from some of the restrictions that apply to other plans.
Basically, with a SEP, you set up individual retirement accounts (IRAs) for each of your participating employees. Your company may contribute up to $46,000 in 2008 or 25% of annual compensation (whichever is less) to each account. SEPs generally appeal to smaller companies. The prime attractions are low start up costs, minimal record keeping and reporting requirements, and flexibility in setting the plan's allocation formula for annual contributions.
The Salary Reduction Simplified Employee Pension Plans (SAR-SEP) differs from the SEP in that it allows the employee to contribute as well through a salary deferral program. As of 12/31/86, SAR-SEPs can no longer be established; however, existing SAR-SEP plans may continue and new employees added as they become eligible.
