401(k) Plans

 

401(k) plans are defined contribution plans used to fund retirement benefits.  401(k) plans are customarily funded through employees' pre-tax deductions, up to an annual limit that is determined by the IRS.  Employees who max out on their pre-tax contributions, and who will turn 50 before the end of a calendar year, can make additional catch-up contributions on a pre-tax basis.  Payroll executes this withholding.  Once withheld, the Employee Retirement Income Security Act (ERISA) requires that employees' contributions become plan assets at the earliest date on which those contributions can reasonably be segregated from the employer's general assets.  The outside limit is the 15th day of the month following the month during which the withholding occurred.  401(k) plans must pass non-discrimination tests; plans that fail the tests may have their tax-qualified status revoked.  Employees who borrow from their 401(k) plans usually pay those amounts back through withholding.  In addition, auto-enrollment 401(k) plans automatically enroll employees, who must opt out of the plan to receive their full salaries.  Special W-2 reporting rules apply to employees' pre-tax 401(k) contributions.  Continue 401(k) plans. 

 

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NEWS/ARTICLES

IRS Grants Funding Relief To Some 401(k) Safe-Harbor Plans 

Proposed Regs Require Disclosure Of 401k Plan Fees And Expenses 

Regulations Require Changes To Default Investments 

Automatic 401(k) Enrollment: Benefits For Both Employers And Employees 

Regulations Touching 401(k) Plans Just Keep Coming 

401k Sponsors Face New Liability: Unreasonable Fees 

IRS Proposes Regulations On Negative-Option 401(k) 

The Importance Of Year-Round Employee Benefits Communication

Final Regs Allow 401(k) Plans To Provide E-Notices; Conform To E-SIGN Act

 

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FAQs

1. An employee wants to borrow $25,000, at 9% annual interest, from her 401(k) plan. Her non-forfeitable balance is just over $74,000. She's worked up a promissory note under which she makes 59 monthly payments of $253.57, and a $20,119.89 balloon payment. This sounds good. Is it?
   
   
2. Many employees don't use all of their vacation time. Can we allow them to contribute the value of unused vacation days into their 401(k) accounts?
   
   
3. In the process of changing payroll providers, two employees fell through the cracks. A new hire filled out all the paperwork to have 401(k) pre-tax deductions made from her pay, but received her full salary, instead. Another employee was already having pre-tax deductions made, but pre-tax deductions weren't made from a bonus. We caught both problems six months into the year. How can we fix this?
   
   
4. We're considering converting our 401(k) plan into a qualified automatic contribution arrangement (QACA), but we're confused about who must be automatically enrolled. Is it just new hires?
   
   
5. What is a Roth 401(k)? Is it a new type of plan?
   
   
6. Can a 401(k) plan automatically enroll employees into a designated Roth feature if they fail to affirmatively decline participation?