Salary Reduction Simplified Employee Pension Plan

A Salary Reduction Simplified Employee Pension Plan (SARSEP) is a simplified employee pension (SEP) plan set up before 1997 that includes a salary reduction arrangement. Under a SARSEP, employees can choose to have the employer contribute part of their pay to their Individual Retirement Account or Annuity (IRA) set up under the SARSEP (a SEP-IRA). A SARSEP may not be established after 1996. However, for SARSEPs set up before 1997, eligible employees hired after 1996 must be allowed to participate.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) changed many of the Internal Revenue Code's requirements and limits for qualified plans and IRAs. If a model SARSEP plan was used, an updated model plan should have been adopted by the end of 2002 to take advantage of new law changes.