Salary Reduction Simplified Employee Pension Plan

A salary reduction simplified employee pension plan was an investment vehicle created for businesses with fewer than 25 employees. Self-employed people could also establish and maintain a salary reduction simplified employee pension plan. Under a salary reduction simplified employee pension plan, an employer could deduct a portion of an employee's salary and deposit it into an IRA. Employees chose whether and to what extent they would take part in a salary reduction simplified employee pension plan. Employee contributions to the salary reduction simplified employee pension plan were referred to as an "employee elective deferral" or a "salary reduction contribution." Contributions to a salary reduction simplified employee pension plan were made only to a traditional IRA. The salary reduction simplified employee pension plan format has since been replaced by the "SIMPLE" plan, which was created by the Small Business Job Protection Act of 1996. However, a grandfather clause allowed businesses with an established salary reduction simplified employee pension plan to keep their plans.