Question

SARSEPs may not be established after 1996, and any existing SARSEPs may no longer accept deferrals.

Select one:

True

False

Answer 1

False, A SARSEP may not be established after 1996. However, for SARSEPs set up before 1997, eligible employees hired after 1996 must be allowed to participate.

A SARSEP set up before 1997 must meet the following requirements each year:

1. 25 or fewer employees were eligible to participate in the SARSEP in the preceding year;

2. At least 50% of the eligible employees choose to make salary reduction contributions this year; and

3. The elective deferrals of highly compensated employees meet the SARSEP deferral percentage limitation.