Other Tax-Favored Retirement PlansHistorically, many small businesses have found it difficult or impossible to establish a qualified plan that meets the needs of both owners and employees. Barriers have included the high costs of ensuring that all qualification requirements are being met. The Congress has therefore established two special types of plans for small businesses that while not technically "qualified" nevertheless receive favorable tax treatment: simplified employee pensions (SEPs) and savings incentive match plans for employees (SIMPLEs). Such options are designed to increase the number of small businesses offering retirement plans. Keogh plans, which are available to self-employed people and thus are used almost exclusively by small businesses, are considered qualified plans. The federal government's retirement plans and certain types of plans sponsored by state and local governments and by nonprofit organizations are not subject to qualification requirements. The plans described below are not technically qualified, but each receives favorable tax treatment that is similar or identical to that of qualified plans.
Some for-profit companies sponsor deferred compensation plans that are not qualified and receive no favorable tax treatment. Those arrangements are known as top-hat plans and are designed primarily to reward long tenures of service among upper-level executives of the sponsoring companies.
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