5.8 Special Plans

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

5.8 SPECIAL PLANS

5.801 Simplified Employee Pension Plans (SEPs). A SEP is an IRA that accepts employer contributions. It is owned by the employee and is always 100 percent vested. SEPs are treated as defined contribution plans for purposes of applying the maximum contribution limitations described earlier. The SEP can be established after the end of the employer's taxable year but before the employer's tax return is filed in order to deduct contributions. The SEP offers the small employer flexibility and little administrative involvement aside from simplified annual reporting. However, as with qualified pension and profit sharing plans, a number of requirements must be met in order to obtain the tax advantages. Effective after December 31, 1996, a SEP cannot be established that contains a cash or deferred feature similar to a 401(k) plan. Employers that adopted such a program before January 1, 1997 may continue it, and new employees of that employer may participate.

The maximum compensation used in discrimination testing is $265,000. ⁴⁶⁶ This amount is adjusted annually for inflation. The amount of elective deferrals that can be made each year under a pre-1997 plan that includes a salary reduction feature is $18,000 for 2016. ⁴⁶⁷

5.802 SIMPLE Plans. Employers with fewer than 100 employees who received at least $5,000 in compensation from the employer in the preceding year may adopt a "Savings Incentive Match Plan for Employees" (SIMPLE plan), if they do not currently maintain another qualified...