Which of the following correctly describes a simplified employee pension (SEP) plan?

A simplified employee pension (SEP) plan is designed to allow employers to contribute toward their employees' retirement savings in a simplified manner. The key characteristic of a SEP plan is that employer contributions must be made on a nondiscriminatory basis, meaning that all eligible employees, including those with lower compensation and not just highly compensated individuals, are treated equally when it comes to contributions. This promotes fairness and encourages broader employee participation in retirement savings.

This nondiscriminatory requirement ensures that all eligible employees receive the same percentage of their compensation as contributions to their SEP accounts, thus enhancing the effectiveness of the plan as a retirement savings tool. This aspect is crucial for compliance with IRS regulations, fostering a culture of inclusivity within the workplace.

Options suggesting that contributions can only be made for highly compensated employees, that they can be discriminatory, or that only self-employed individuals can use SEP plans do not accurately reflect the essential features and benefits of a SEP plan. Such limitations conflict with the intention behind SEPs, which is to provide a straightforward and equitable retirement saving opportunity for both employers and employees.