ABA Family Legal Guide

The Rights of Older Americans

Pensions

401(k) Plans and Simplified Employee Pension Plans

I work for a small company that has a simplified employee pension plan (SEP). How does a SEP differ from traditional pension plans and 401(k) plans?

SEPs are particularly popular with small companies because they are relatively uncomplicated retirement savings plans (self-employed workers also can participate in a SEP). A SEP allows employers to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. There are limits on the amount of contributions, and the contribution limit applicable to your plan will depend on the kind of SEP your employer has set up.