The Simplified Employee Pension Plan (called SEP) makes it possible for employers to make contributions to a retirement plan for their employees without the on-going expense and maintenance of a more complicated qualified plan. The reporting and disclosure requirements for a SEP are few.

When the employer adopts a SEP, employees establish their earmarked account. The contributions are fully vested to the employee. The employer may contribute up to 15% of compensation for each employee, to a maximum of $30,000 per individual per year (indexed to inflation). Employees control their own accounts. The investment options may be changed as desired.

Employer contributions to a SEP are flexible. The amount and percentage can change from year to year. The employer is not required to continue funding the plan. This is advantageous for employers whose available funds may vary widely from year to year.

A SEP plan is attractive to employers seeking a cost-efficient, simple program requiring little administrative work. They are available to self-employed individuals, partnerships and all kinds of corporations including non-profit organizations. For taxable employers, SEP contributions are tax-deductible. Contributions are deductible if made by the due date (plus extensions) of the tax return for the taxable year. An employer can offer a SEP in conjunction with an employee salary reduction plan such as a 403(b) plan.

Generally, all employees must be included in a SEP. Exceptions may be specified in the adoption agreement, and can include requiring a participant to be at least 21 years of age and/or to have worked for the employer for at least part of three of the past five calendar or plan years. Nonresident aliens, collective bargaining employees, and employees who earn less than $450 a year (indexed annually to inflation) may be excluded. Employer contributions are not included as income on the W-2. These are not considered wages for the purpose of determining Social Security (FICA) taxes or Workers Compensation earnings.

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