Salary Reduction Simplified Employee Pension Plan - SARSEP

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Definition: Salary Reduction Simplified Employee Pension Plan - SARSEP

SRSEP plan is an alternative to 401(K) plan which is available to companies which have 25 or less number of employees. This scheme allows employees to set aside a part of their pretax income which is used to make contribution to their pension account. Thus this scheme also helps the employee to reduce their current year salary and hence the taxes that he has to pay.

These SRSEPs were considered to be one of the valuable benefits of employment. However this rule was later on replaced by another plan named SIMPLE (Savings incentive match plan for Employees) under the Small Business Job Protection Act of 1996.



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