Salary Reduction Simplified Employee Pension Plan

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Salary Reduction Simplified Employee Pension Plan (SARSEP)

A low-cost, no-frills version of a 401(k) employee savings plan available to companies with 25 or fewer employees. It allows employees to make pretax contributions to their IRAs through salary reduction each year. The Small Business Job Protection Act of 1996 replaced SARSEPs with SIMPLE (Savings Incentive Match Plan for Employees) plans. Existing SARSEPs were allowed to add new participants, but new plans could not be formed after December 31, 1996.

Salary Reduction Simplified Employee Pension Plan

A former 401(k) for small businesses, defined as those with fewer than 25 employees. This plan minimized costs for the employer, and employees could make contributions through paycheck deductions. It was replaced by the SIMPLE plan in 1996.
References in periodicals archive ?
414(w) permissible withdrawal feature to SIMPLE IRAs and grandfathered SARSEPs.
1, 1997, no new SARSEPs may be established; however, those in existence as of Dec.
SARSEPs are no longer available, but plans established prior to 1997 still are allowed to continue.
The new ERSA would consolidate 401(k), thrift, 403(b), and governmental 457 plans, as well as SARSEPs (Salary Reduction Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) accounts.
Employers may continue SARSEPs established before 1997, but no new SARSEPs are allowed.
Effective for 1997, these new plans replace salary-reduction simplified employee pensions (SARSEPs); after 1996, no new SARSEPs may be established (although existing ones may continue to receive contributions).
SARSEPs are repealed for years after 1996, but if already established, they may continue to receive contributions.
For this purpose, Retirement Plans do not include retail non-retirement accounts, SEPs, SARSEPs or SIMPLE IRAs.
SARSEPs may no longer be established after December 31, 1996.
More flexible than the unpopular SARSEPs (salary reduction SEPs), which are limited to companies with 24 or fewer employees (see page 5 1) and which require contributions from at least half of the employees.
While there are certain similarities in the applicable rules, SEPs and SARSEPs are subject to special rules and limitations not applicable to qualified plans that are often misunderstood or misinter-preted by the person (usually not a professional adviser) "administering" the SEP program.
One offshoot of the SEP is the salary-reduction option, known as a SARSEP.