SARSEP |
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A Salary Reduction Simplified Employee Pension plan (SARSEP) is a Simplified Employee Pension (SEP) plan set up before 1997 that permits contributions to be made through employee salary reductions, referred to as “employee elective deferrals.” Under a SARSEP, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for the employees, subject to certain percentage-of-pay and dollar limits.
Employees can play an active role in funding for their retirement by choosing to have the employer contribute part of their pay to their separate IRAs, referred to as SEP-IRAs. SEP-IRAs need to be established for each participant, even those becoming eligible after December 31, 1996, with a bank, insurance company or other qualified financial institution.
No new SARSEPs can be established after December 31, 1996. However, employers who established SARSEPs prior to January 1, 1997, can continue to maintain them and new employees of the employers hired after December 31, 1996, can participate in the existing SARSEP.
To have a SARSEP, you:
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Must have established the SARSEP before 1997.
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May need to keep the plan amended for current law changes (see Operating a SARSEP below).
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Must meet the following participation requirements annually based on all eligible employees (even those hired after 1996).
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At least 50% of your employees eligible to participate must choose to make employee elective deferrals for the year.
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You must have no more than 25 employees who were eligible to participate in the SARSEP at any time during the preceding year.
A SARSEP has a life cycle with four distinct stages. Click on the links below to review additional information on each of the life stages of a SARSEP.
SARSEP Checklist
It is important to review the requirements for operating your SARSEP every year. This checklist has been designed as a diagnostic tool to help you keep your SARSEP in compliance with important tax rules.
See Resources - IRA-Based Plans for forms, publications, frequently asked questions, etc.
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Page Last Reviewed or Updated: January 08, 2009