Q. We’ve been using a SARSEP for our business. With the new rules for DB(k)s in place, are these still valid? D.J., Langhorne, Pa.
A. Yes, they are two different types of plans. A SARSEP (Salary Reduction Simplified Employee Pension) enables an employee to use deferrals of salary—much like a 401(k)—to supplement employer contributions to a SEP. It is available to employers that had only 25 or fewer employees in the prior year. Due to a tax-law change, you can no longer set up a new SARSEP, but employers with SARSEPs established before 1997 may continue to operate them, subject to usual rules for qualified plans.
Tip: As with most other defined contribution plans, contributions to a SARSEP for 2009 or 2010 can’t exceed the lesser of 25% of compensation or $49,000.