Simplified Employee Pension Plans

Sponsoring a qualified plan is often administratively complex and expensive. The Code permits an employer to establish a type of tax‑favored deferred compensation arrangement that is considerably simpler and less expensive to administer. These arrangements are referred to as simplified employee pension plans (SEPs) [IRC Sec. 408(k)].

Individuals who are self-employed either full or part time are generally eligible to set up a SEP. Even employees employed by another organization that has a pension plan may be able to establish a self-employed plan, subject to certain conditions and restrictions.

A SEP offers businesses, closely held or otherwise, the opportunity to establish either an employer- or employee-funded pension plan for stockholders and eligible employees. An employer establishing a SEP does not necessarily have to be an incorporated firm...