Simplified Employee Pension, or shortly SEP, is a written plan which enables you to make contributions toward your own retirement when you are self employed and your employee's retirement without getting involved in a more complex qualified plan. Under a Simplified Employee Pension, you make the contributions to a traditional individual retirement arrangement called a SEP IRA setup by or for each eligible employee. So the SEP Ira is owned and controlled by the employee and you (the employer) make contributions to the financial institution where the SEP Ira is maintained. There are three basic steps in setting up a Simplified Employee Pension. Step number one is to execute a formal written agreement to provide benefits to all eligible employees. Step number two is to give each eligible employee certain information about the SEP. And the third step is to setup a SEP IRA for every eligible employee. Many financial institutions will help you setup a SEP. You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. However, there are cases when you are not allowed to use this Form, but in case you do, then no prior IRS approval or determination letter is required. Keep the original form; don't file it with the IRS. Regarding the second step (information you must give to employees), you must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. The whole IRS models SEP is not considered adopted until you give each employee this information. Concerning the final step, you can setup SEP-IRAs with banks, insurance companies or other qualified financial institutions. Then you will be sending the SEP contributions to the financial institution where the SEP-IRA is maintained. You can setup a SEP for each year as late as the due date (with the extensions) of your income tax return to that year. According to the SEP rules, you can contribute only a limited amount of money each year to every employee's personal SEP IRA. If you are self-employed, then you can not contribute to your own SEP IRA. You are not allowed to contribute property; contributions must be in the form of money (cash, check or money order). You don't have to make contributions every year. Simplified Employee Pension plans are a perfect tool to help retain valuable employees.  Since you are not required to make contributions every year it can be used as a profit sharing arrangement with your employees where contributions are made in the years you earn a certain profit level.  This not only helps retain employees but motivates them to help the company earn a maximum profit each year to benefit their retirement plan.