Which plan requires nondiscriminatory contribution from employers?

The correct answer is the Simplified Employee Pension (SEP) plan, as this type of retirement savings plan mandates that employer contributions must not favor highly compensated employees over lower-paid employees. This nondiscriminatory requirement helps ensure that contributions are fairly distributed, promoting equitable savings opportunities for all employees regardless of their income level.

In a SEP plan, the employer is allowed to contribute a percentage of each eligible employee's compensation, but this percentage must be the same for every eligible employee. This guarantees that all employees are treated fairly in terms of contributions. Such a structure fosters a more inclusive retirement savings environment, which aligns with the goals of promoting retirement security across the workforce.

While 401(k) plans, Simple IRAs, and defined benefit pension plans also have regulations regarding contributions, they do not have the same level of nondiscrimination requirements in terms of employer contributions that SEP plans do. For instance, in a 401(k) plan, employers can choose to match employee contributions in a way that may disproportionately benefit higher earners, and Simple IRAs often do not impose strict contribution limits or nondiscrimination tests like SEPs do. Defined benefit pension plans can vary widely in how benefits are distributed and may not necessarily require uniform contributions for all employees.