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SARSEPs, or Salary Reduction Simplified Employee Pensions, established prior to 1997 possess the unique feature that they can continue to exist and be funded. This allows employers who established a SARSEP before the cut-off date to maintain their plans, enabling both employer and employee contributions to be made, provided they adhere to the original plan rules.
The significance of this feature lies in the flexibility it offers to employers and employees looking to benefit from retirement savings through these plans, while newer plans established after 1996 must adhere to different regulations under SIMPLE IRAs. Existing SARSEPs benefit from different contribution limits compared to their subsequent counterparts, which enhances their attractiveness for planning purposes.
In contrast, other options presented do not accurately characterize the defining feature of SARSEPs. The ability to modify plans every year is not a distinctive trait of SARSEPs, nor are they exempt from contribution limits. While an established SARSEP doesn't have to be converted to a SIMPLE IRA, doing so could impose new requirements and limitations that were not previously applicable. Overall, the unique quality of continuous existence and funding distinguishes pre-1997 SARSEPs in the landscape of retirement plans.