Salary Reduction Simplified Employee Pension Plan - SARSEP

In the old days, Salary Reduction Simplified Employee Pension Plans were used by small companies to help their employees save for retirement. When we say "old days," we mean back before Marvel movies took over Hollywood, and back when you used a physical disk to listen to music. But, more pertinent to the current topic...back before 401(k)s became a major Thing.

Under the SARSEP, companies could put money aside for employees through contributions to IRAs. These contributions, which were made with pre-tax dollars, came with salary reductions for the employees. So, basically, the companies trimmed the employee's salary, but put that money into an IRA for them instead. That process included a tax break for the money contributed.

Like CDs and theatrically released romantic comedies, these plans have disappeared from the marketplace. A new law passed in 1996 changed many of the rules surrounding retirement funds. Since then, 401(k)s have become more widespread. Meanwhile, a new structure, called the Savings Incentive Match Plan For Employees Of Small Employers (or SIMPLE), filled in the void left by the departing SARSEPs.