Whether your firm is large or small, the addition of a 401(k) plan to your employee benefit program can provide many benefits – both to your employees, your company, and to you.
The key to success is designing the plan to meet both your organization’s and your employee’s goals. Further, the plan should be communicated in such a way as to encourage high levels of participation, both initially and in the future, by employees at all levels of the organization. Finally, the plan should be administered in an accurate, efficient, and cost-effective manner. We at The Price Company have professionals available to help you achieve each of these objectives, either through our own efforts or through referral. In addition to being able to administer most existing scenarios, The Price Company also offers customized plans that are created to meet the specific needs of your organization.
Because hands-on consulting is core to the business services we at The Price Company provide, we ask that to begin the process of solving your unique needs that you contact us today and schedule an appointment with one of our qualified plan administrators. The easiest way to do this is to call us at 559.224.7656 or fax us (our fax number is 559.224.3509) a completed Company Census Form. Once received, a plan administrator will contact you to set up an appointment for your personalized consultation.
In designing the most beneficial 401(k) plan for your unique business, there are several plan features we will ask you to consider at that meeting:
- Contribution sources
- Tax-deferred employee contributions only
- Employee deferrals plus stated employer match
- Employee deferrals plus stated employer match and discretionary profit sharing contributions
- Employee deferrals plus totally discretionary employee contributions
- Eligibility requirements
- Length of service
NOTE - While there are many “stand alone” plans (employee contributions only in existence), the majority provide for some form of employer matching contributions, either stated or discretionary, as this feature greatly increases employee participation. The maximum permissible conditions for becoming a participant in a 401(k) plan are attainment of age 21 and completion of one year service. Many employers are less restrictive and do not impose any service requirement.
Most employers require that plans participants contribute at least 1% of their pay, with a typical upper limit of 10% of their pay. These limits help most employers avoid failing the government’s discrimination tests referred to earlier, and help them comply with various restrictions on the maximum allowable contribution to any participant’s account.
Employer Matching Contributions
Most employers provide some sort of matching contribution – either pre-defined or discretionary. Generally, employers will contribute between 25 and 50 cents for every dollar an employee contributes. Normally, the matching contribution only applies to deferrals representing the first 4% to 6% of an employee’s pay. Some employers establish a maximum dollar amount for their contributions.
Most plans offer three or more investment alternatives. While most employees seem to prefer a low risk “guaranteed” investment vehicle, there are enough looking for more aggressive opportunities to warrant their consideration.
Company contributions can be subjected to a vesting schedule under which amounts are forfeited if a participant terminates service after only a few years. Either a five-year cliff vesting schedule or a seven-year (or less) graduated vesting schedule can be used. However, participants are always 100% vested in their own salary deferrals. This is required by law. Frequently, the matching contribution is also 100% vested, again to encourage people to participate, but this is not required.
Other Plan Features
Almost all plans offer hardship withdrawal availability to participants. Because of IRS regulations restricting the circumstances under which amounts can be withdrawn, more and more employers are including loan provisions in their 401(k) plans.
Have a question or comment? Please feel free to contact us today!