Simplified Employee Pension Improvements Act of 1986

Simplified Employee Pension Improvements Act of 1986 - Amends the Internal Revenue Code to provide that contributions made by an employer on behalf of an employee to an individual retirement account or individual retirement annuity pursuant to a simplified employee pension shall be excluded from the gross income of the employee.

Permits the employer contribution to a simplified employee pension to be made on the basis of the employer's taxable year rather than in relation to the calendar year ending within the employer's taxable year.

Modifies the maximum contribution that an employer may make on behalf of the employee to a simplified employee pension.

Modifies the requirement that the employer must cover an employee under a simplified employee pension if the employee has worked for the employer in three of the last five years, applying this rule either on a calendar year or fiscal year basis.

Requires $300 earnings by an employee before an employer is required to make contributions to a simplified employee pension on behalf of the employee. Requires an annual cost-of-living adjustment to such dollar amount.