is a 401(k) Plan?
401(k) Plan is an employer sponsored retirement program allowed under Section
401(k) of the Internal Revenue Code (IRC). Generally, under this type of
program, employees are provided with the opportunity to defer part of their
salary on a pre-tax basis. At times, these arrangements also allow for different
forms of employer contributions that are used to supplement employee savings for
do employers adopt 401(k) Plans?
may have several reasons for adopting 401(k) Plans. Some reasons relate to human
resource issues, such as attracting and retaining employees. Other reasons may
include tax issues, such as the deduction employers may be entitled to take on
the contributions they make to the plan. Employers may also want to assist their
employees in securing a financial plan for retirement.
are the benefits of a 401(k) plan versus other retirement plans?
general, 401(k) plans can be suitable for companies with any employees. In
comparison to other retirement plans, 401(k) plans can offer the following
benefits: higher contribution limits contributions on a pre-tax basis (up to the
annual IRS limit) vesting schedules for employer contributions pre-retirement
access to account assets through loans In order to offer these features, 401(k)
plan sponsors must follow certain legal and administrative guidelines.
many funds are available to the plan?
The plan sponsor (the employer) may select a total of 10-12
funds from over 45 different available funds to be in the plan. VIMCOR will
assist in this selection and will create model portfolios from the selection so
that employees may invest in Growth, Balanced, or Income attributes utilizing
the 401k plan. In addition, the
administrator also monitors these funds and will replace under performing funds
with funds of similar attributes.
Below is a list of funds that are available:
is the employee’s money held?
Is it secure?
All employee money is held in trust by TD Waterhouse
Institutional Services. Waterhouse
is insured by SIPC. Only the
Administrator can authorize deposits, withdrawals, and the payment of fees.
Only the employees may authorize changes to their investment portfolios.
do my employees go to have their questions answered?
You and your can contact either the administrator’s
24-hour access lines, or VIMCOR. VIMCOR
will answer questions about the mutual funds in the account, asset allocation
questions, and will assist in designing optimal portfolios for each employee
given that employees circumstances.
are the tax advantages?
in your 401(k) plan can reduce their current federal and, in most cases, state
and local taxes by making contributions on a pre-tax basis. Account assets can
grow tax-deferred until withdrawn, which can help participants accumulate
substantially more than they would in a comparable taxable investment. In
addition, any contributions your company makes to your employees' accounts are
generally tax deductible as a business expense.
much does it cost to set up a plan?
401(k) Plans can cost as much as $5,000/year in administrative fees, for even
the smallest employer. But with we have been able to change the dynamics of this
business to cut costs and derive revenues from alternative sources (i.e.
advertising). This enables us to offer 401(k) Plans to employers without the
traditional administrative fees.
- we provide the complete array of tax filings and statutory disclosures, as
well as an additional level of services previously only available to the largest
- we provide no-load access to virtually unlimited investment options, including
thousands of the country's top performing mutual funds, as well as individual
self-directed brokerage accounts for every participant.
- we perform as a co-fiduciary to your company's plan and provide both employee
education as well as participant specific advice.
is unique about our Plans?
are the only bundled 401(k) provider that performs as a Co-Fiduciary to every
Traditionally fiduciaries to qualified plans (i.e. owners
and executive staff) have had to handle their fiduciary mandates that govern the
way plans are supposed to be run by themselves (and faced stiff penalties for
inadvertently running awry of these mandates). But as a Co-Fiduciary, the
administrator guarantees that your plan is set-up, maintained and run correctly,
because we have the same liability if it is not.
So unlike Fidelity, Merrill Lynch and Charles Schwab - we
put our money where our mouth is! We stand by our clients as a Co-Fiduciary, and
guarantee that your plan is run in compliance with ERISA and its fiduciary
duties. (Including the standard provision of participant specific investment
advice and employer compliance services.)
Convenient – Your
account is online and available 24-hours-a-day, seven days a week. So employers
and employees can access their plan information from anywhere, anytime at their
Easy - Everything
is handled on our site, from plan set-up and employee enrollment through payroll
tracking and participant reporting. We can be fully integrate with all major
payroll software and provide online real-time assistance to both employers and
Secure - The
latest encryption technology is used to ensure a safe and secure environment for
your personal financial information. We are Verisign certified and TrustGuard
an employer exclude employees from participating under a 401(k) Plan?
all employees must be offered the opportunity to participate in the plan. The
employer may set certain age and service requirements that employees must reach
before becoming eligible to participate under the plan. (There are minimums and
maximums in both categories: Age = not greater than 21, or less than 18; Service
= not greater than one year, no minimum.)
Note: Certain groups may be permanently excluded from a
plan, provided several Sections of the IRC and other applicable laws are
satisfied. Example: Employees covered by Collective Bargaining Agreements or
all employees contribute under the 401(k) Plan?
No. While employees who are eligible to participate under
the 401(k) Plan must be given the right to participate, they are not obligated
to contribute to the plan
much can an eligible employee
to the 401(k) Plan?
eligible employee may contribute anywhere from 1% to 25% of salary, with an
annual pre-tax limit of $10,000. However most employers limit maximum
contributions to less than 20%, to afford for discretionary contributions made
by the employer at either year-end or as a match.
Note: There are other Sections of the IRC that may further
reduce the amount an eligible employee may contribute to the plan.
types of contributions are allowed?
401(k) Plan can accept both pre-tax and after-tax contributions, which may
include salary deferrals, commissions, bonuses, and other types of compensation.
Most employers allow pre-tax contributions as defined by salary, commissions,
and bonuses (i.e. W-2 Income), but it is rare that employers allow after-tax
any taxes paid on the money contributed by employees?
Contributions made by employees are treated as wages for purposes of social
security and Medicare employment taxes, as well as unemployment taxes. Some
states and local municipalities may also include these amounts as wages for tax
purposes. However, they are exempt from federal income taxes until distributed
to the employee.
required to be part of a 401(k) Plan?
matching contributions are optional. However, many employers elect to
incorporate a matching contribution provision in the plan. This is usually done
for a variety of reasons, including: to attract and retain employees, to remain
competitive with industry standards, to encourage eligible employees to
participate under the plan, and/or for tax incentive purposes.
can participants get money out of their 401(k) account?
there are common distribution events offered under most plans -- retirement,
separation from service, death and permanent disability. In these situations the
participant or the beneficiary may receive distributions from the plan. Many
plans also have additional means to receive funds, such as loan provisions,
hardship withdrawals and age 59 ½ in-service distributions.
Note: You should be aware, however, that there are
restrictions and/or tax consequences for most distributions.
is a Negative Enrollment
election is a means of enrolling employees in a qualified plan that requires
them to elect not to participate, rather than the other way around. This
technique is commonly practiced among many of the largest employers in the U.S.
and has been deemed acceptable by the U.S. Dept. of Labor.
In addition negative elections can enable Highly Compensated
Employees (HCE) of employer-sponsors to contribute more often to their own plan
accounts, because it can help enable a plan to pass its non-discrimination tests
more easily. But at the end of the day, negative election is a choice made by
are always entitled to the amounts they contribute under the plan. An employee
may also be entitled to all or a portion of any contribution made by the
employer. The amount of the employer contribution the employee would be entitled
to is dependent upon the vesting schedule provision adopted by the employer. A
plan may require the employee to complete a certain number of years of service
with the employer before these contributions become fully theirs. Some plans
provide for a graduated vesting schedule, so that the employee can earn a right
to a portion of their employer contributions as they complete a specified number
of years of service.
IRC requires a series of mathematical tests that ensure that the average
percentage of salary contributed by highly compensated employees is not
excessive when compared with those contributions made on behalf of the lower
must be offered under a 401(k) Plan?
may offer as many investments as they deem appropriate. However there are
guidelines under Section 404(c) of the Employee Retirement Security Act of 1974,
as amended ("ERISA"). These guidelines provide recommendations as to
the number and scope of the investment offerings that an employer may choose to
make available to plan participants, and require a minimum of three investments
with differing risk/return characteristics.
Note: Section 404(c) is a complicated provision of ERISA and
contains a variety of provisions that must be met to qualify for its Safe Harbor
provisions. Consult your legal counsel for details.
Independent Brokerage Accounts
The employees will also have the option (available soon) to select an independent brokerage account that would be directly managed by VIMCOR. This option would permit buying of individual equities and foreign investments.