The Revenue Act of 1978 established the Simplified Employee Pension (SEP) for years beginning after 1978. Effectively, a SEP is not a qualified Plan; rather, it is a Plan for contributing to a group of Individual Retirement Accounts (SEP/IRAs). The primary advantage of a SEP is simplicity; it is not subject to most of the government reporting and disclosure requirements that apply to other qualified retirement Plans. Generally, SEP administration consists only of filing a single form, Form 5305 SEP, with the IRS annually.

A SEP generally must cover every employee who is at least age 21, has performed any service for the employer maintaining the Plan during at least three of the immediately preceding five calendar years and has received at least $300 in compensation form the employer for the year. Contributions must be fully vested when made. Only the first $160,000 of a given employee's compensation may be taken into account under the Plan. Employer contributions to a SEP must bear a uniform relationship to the total compensation of each participant. A non?model SEP can be integrated with Social Security in a manner similar to qualified Profit Sharing Plans.

Effective for tax years beginning after 1996, a new type of Plan called a SIMPLE PLAN may be established. In order to establish such a Plan, the Company has to have had no more than 100 employees who earned $5,000.00 or more in wages in the prior year. Under such a Plan the eligible employees make elective contributions to the Plan of up to $6,000.00 each (no larger than 100% of their pay). The Company is required to either (1) match the employee contributions ? limited to 3% of pay or (2) provide a 2% of pay contribution for all employees who are eligible regardless of whether they elect to contribute themselves. Vesting is 100% on all contributions.

The Plan may be set up as a 401(k) Plan or as an Individual Retirement Account Plan. In either case, the complex non-discrimination tests do not need to be performed.

Section 410 of the Code sets forth the minimum participation standards imposed on all qualified Retirement Plans, not including SEP/IRA plans. In order to obtain qualified status, a Plan may not, as a condition of participation, require that an employee complete a period of service extending beyond the later of reaching age 21 or completing one year of service. Part-time employees, working fewer than 1,000 hours during any given year, may be indefinitely excluded, even if they are older than 21. Currently, where a Plan provides immediate full vesting for all participants, employees may be excluded until they have completed two years of service. The two year eligibility is not available for CODA or Salary Reduction Profit Sharing Plans which operate under Section 401(k) of the Internal Revenue Code.

A Plan must provide that an employee who has satisfied the age and service requirements will participate in the Plan no later than the earlier of (1) the first day of the first Plan year beginning after the date on which the employee satisfied the requirements, or (2) the date six months after the date on which the employee satisfied the requirements.

If two or more entities constitute either a controlled group of corporations or trades or businesses under common control, as defined in Code Section 414(b) and (c), respectively, then the rules of Section 401 (qualification standards), Section 410 (participation), Section 411 (vesting), and Section 415 (limitations on benefits and contributions) are applied to all members of the controlled group as if all of the employees worked for the employer adopting the Plan. (For purposes of Section 415 limits, the 80 percent ownership requirement for a controlled group is reduced to 50 percent.) The rules under Section 404 (deductions) and Section 412 (funding) generally are applied only with respect to members of the controlled group who adopt the same Plan.

Special rules exist under Section 414(m) of the Code that relate to affiliated groups of service corporations.