A 401(k) plan derives its name from the section of the IRS code that covers this type of qualified plan. These plans provide eligible employees the option of making contributions into a qualified plan on a pre-tax basis where contributions can grow tax deferred until taken out at retirement. Though there is no requirement for employers to contribute, many offer matching contributions, either on a discretionary or stated basis, to encourage employee participation.

Contributions are automatically deducted from employees’ pay at each pay period prior to income taxes being deducted. Investment options are generally set by the plan sponsor, however allocation among investment choices is generally left to the employee's discretion. Eligibility requirements can be determined by the employer, though they cannot exceed maximums set by the IRS.

Employee contributions are always 100% vested, but employer contributions can be subject to a vesting schedule. Plans can allow participants access to funds either through "hardship" withdraws or loans, though participants who take withdraws prior to eligible retirement age will be subject to all current payroll taxes and a 10% penalty. Another benefit to these plans is their portability. Participants can "roll" assets out of a 401(k) plan into any other qualified 401(k) or a personal IRA upon leaving employment with the plan sponsor.

Though these plans are a great benefit to most employees, Highly Compensated Employees (HCE's) may find them somewhat restrictive. HCE's can only participate at a level based on the average participation rate of all eligible non-highly compensated employees. This is the reason most employers offer a matching contribution as a way to encourage Non-HCE's to participate at a higher rate. 401(k) plans can also be combined with other profit sharing plans as a means of getting higher contributions to key employees using such allocation formulas as New Comparability.

Please Complete an Employee Census if you are interested in this plan.