401(k) Plans

How These Plans Work
  • Employees save for retirement with pretax and/or post-tax contributions that are fully vested at all times
  • Pretax contributions and all earnings grow on a tax-deferred basis
  • Plan assets are held in a trust that is protected from creditors of both the company and the employee
  • When an employee retires or leaves the company, his/her account can be rolled over to an IRA or the next employer’s retirement plan (if that plan accepts rollovers) to continue the tax-deferred status
  • Many companies provide matching contributions to bolster employees’ savings
  • Often a vesting schedule will apply to matching contributions such that an employee might only get part of the matching account when he/she leaves the company
  • Employees who are age 50 or over can make catch-up contributions
  • Most plans allow employees to take a loan from their accounts
  • Most plans permit employees to withdraw from their accounts to meet a financial hardship or provided that they have attained at least age 59-1/2
Things To Note
  • Employee contributions and company matching contributions are subject to nondiscrimination testing to ensure that highly compensated employees do not overly benefit
  • 401(k) contributions made by highly compensated employees might have to be refunded if nondiscrimination tests fail
  • Employee 401(k) contributions and catch-up contributions must not exceed IRS prescribed annual limits
  • Combined contributions from employee and employer must not exceed the IRS prescribed annual limits
  • Low participation among non-highly compensated employees may result in frequent refunds to highly compensated employees
  • Employees might need financial education on how to diversify their investments and/or more explanation on how they can benefit from participating in the plan
  • The addition of a Roth 401(k) feature to the plan can enhance benefits for employees by allowing them to contribute on an after-tax basis but earnings are generally withdrawn tax-free
What We Can Do
  • Evaluate your objectives and recommend possible plan designs, including “safe-harbor” designs that would eliminate the need for nondiscrimination testing
  • Consult with you on regulatory changes and emerging trends
  • Perform modeling to determine the costs of varying levels of matching contributions
  • Perform annual coverage testing of the plan and nondiscrimination testing of employee and company contributions; identify corrective measures if tests fail
  • Assist in vendor searches to find appropriate service providers for your plan
  • Help with employee communications, including communication materials, employee meetings and workshops
  • Prepare plan documents, plan amendments, and required communications to employees
  • Assist in qualifying your plan with the IRS, including preparation of IRS submissions
  • Provide administration for your plan – daily valuation or traditional recordkeeping, process loans and distributions, including preparation of required governmental information returns related to distributions from the plan
  • Prepare the annual 5500 return/report required by the IRS, including any necessary interface with the plan’s independent auditors
  • Assist you with any IRS or DOL audit of your plan