This simple one page document is used to set the age and service requirements for participation in the plan, along with the formula for allocating contributions. Once completed, a copy of this document plus other SEP information, is given to each eligible employee to satisfy the disclosure requirements of the law. Participation Requirements Businesses may establish eligibility requirements for their plans. Contributions to a SEP are allocated to eligible employees in proportion to compensation, with each receiving the same percent of pay. Best of all, contributions are discretionary.
Employers can vary the amount from year to year, or skip the contribution entirely.
SEPs offer administrative simplicity because contributions are deposited directly into IRAs opened by the employees who make the investment decisions. Since the employee, not the employer, controls the IRA, the need for detailed record keeping and reporting is eliminated, and the SEPs are completely portable, something much appreciated by employees.