Final answer:
A SEP plan does not require mandatory annual contributions from employers, making the statement false. Employers have the flexibility to decide whether to contribute each year.
Step-by-step explanation:
The statement that a Simplified Employee Pension (SEP) plan does not necessitate mandatory annual funding by the employer is inaccurate. While employers are not obliged to make contributions every year, they retain the flexibility to opt not to contribute in a particular year. This flexibility distinguishes SEP plans from certain other retirement plans that mandate regular contributions.
In the event that employers do choose to make contributions, they are obligated to allocate these funds equitably among all eligible participants covered by the plan. This ensures that all qualifying employees benefit from the contributions made to the SEP plan. Therefore, while the employer has discretion in determining when to contribute, once contributions are made, the allocation process must adhere to the plan's guidelines.
In essence, a SEP plan offers employers the freedom to vary their annual contributions based on their financial circumstances or business priorities. This feature makes SEP plans a versatile option for businesses seeking a retirement savings arrangement that aligns with their fluctuating financial capabilities.