Plan Customization 
Your 401(k) Easy system comes with an
IRS-approved prototype 401k plan that we work with you to customized to your
401k needs.
|
The IRS-approved 401k prototype
plan 
We customize the prototype 401k to fit your company's
401k needs.
| ASPECT OF PLAN | IRS ALLOWS... | RECOMMENDED for most run-it-yourself 401(k) Easy systems |
|---|---|---|
| Eligibility requirement -- age | anything from none to 21 years of age |
21 years of age |
| Eligibility requirement -- length of service | anything from none to 1 year of service |
3 months of service |
| Eligibility requirement -- union employees | can exclude employees whose service is governed by a collective bargaining agreement | exclude union employees |
| Employer contributions -- matching | cannot make total contributions to any employee account over the annually-adjusted total allowed contribution amount | contact us for details and recommendations |
| Vesting of employer contributions | full, immediate vesting
OR
anything less stringent than
either: |
full, immediate vesting
OR
Five Year Formula: |
| Investment options | almost anything goes (stocks, bonds, annuities, company stock, GIC insurance contracts, and more), but selection offered MUST fulfill plan sponsor's "fiduciary responsibility" | choose among a wide selection of no-load mutual fund families and/or participant-directed brokerage accounts |
| 401k loans | inclusion or exclusion allowed | not recommended in plan's first year of operation |
| Automatic (aka, passive) enrollment | allowed by the IRS, but the legal system has not yet had occasion to rule on possible infringement upon employee rights | no recommendation (consult your legal advisor) |
Standards we recommend
for most small business 401k plans
The entire 401(k) Easy system is based
on years of experience that our sister company,
Pension Service
Associates, has had building and servicing quality 401k plans that
appeal to the special needs of small and medium-sized companies.
That experience (coupled with Internal Revenue Code mandates) brought us to the following standards for all 401(k) Easy 401k plans:
| ASPECT OF PLAN |
|
|---|---|
| Plan year |
|
| Eligibility commencement |
after the person meets the plan's age and length of service eligibility requirements |
| Normal retirement age |
|
| Early retirement age | none |
| Hardship withdrawals | included (IRS-mandated) |
| 401k loans | allowed, but not mandatory (see Options chart, above) |
| Employer matching contributions | allowed, but not mandatory (see Options chart, above) |
| Investments | choose among a wide
selection of SEC-regulated no-load mutual fund
families and/or participant-directed discount brokerage accounts |
| Participant account statements | automatically prepared by the 401(k) Easy software EVERY
MONTH; participants also receive personal, monthly per-investment statements from the mutual fund company or discount brokerage holding their investments |
Safe
harbor option
There is a "safe harbor" option that allows an employer to omit ADP and related compliance testing. The reasoning behind this safe harbor is that if a plan provides certain minimum benefits to ensure broad participation, the company ought not to have to prove yearly that the plan is nondiscriminatory.
To
qualify for the safe harbor option, a 401k plan sponsor must satisfy
three criteria:
Employer must make "safe harbor" (i.e. nonelective contributions) to the accounts of all non-highly compensated employees in an amount equal to 3% of their compensation. Each non-highly compensated employee is entitled to receive this contribution, whether or not the employee elects to actively participate in the 401k. If desired, nonelective contributions need not be made on behalf of the highly compensated employees
If the 401k plan has employer matching provisions, matching must be at least as generous as the "safe harbor matching formula." To qualify under safe harbor matching, two requirements must be met:
401k Contribution
Guidelines and Limitations
A There are three different federally mandated limitations as to how much an employee can contribute to his or her 401(k) plan annually, and how much the employer can likewise contribute to the company's plan..
I. 401k Plan Participant Limitation
Currently a 401(k) plan participant can elect to have up to $15,000 deducted from his or her earnings contributed to the 401(k). If the plan participant is 50 years or older, an additional $5,000 per year may be contributed. The amount the government allows be voluntary contributed by a worker has been steadily increasing over the past decade, and this increase in the limit is expected to continue.
Examples: (1) An employee joins the company's 401k and earns $10,000 for the year -- the entire $10,000 can be contributed to the plan by this employee. (2) An employee earns $2,000,000 and wants to contribute the maximum -- the maximum that this employee can contribute is $15,000.
II. 415 Limitation
The 415 limitation is an overall limit on the maximum amount that can be added to a 401k plan participant's account during the year from all sources. The 415 limit includes the employee's voluntary payroll deduction (which is limited to a maximum of $15,000), combined with any matching or profit sharing or other contribution(s) made into the participant's account by the employer. The current 415 limitation is equal either the employees total compensation for the year OR $44,000, whichever is less.
Examples: (1) An employee earns $10,000 and joined the companies 401(k). This employee contributes $2,500 to the plan, and employer matches the employee at 50-cents to the dollar contributed. The employer provides this employee with a $1,250 matching contribution. (2) An employee earns $2,000,000 a year and contributes the maximum amount of $15,000 to the 401k. The employer has a very generous matching program, wherein the employee will contribute $5 for every dollar contributed by an employee. The most that this employee can have contributed to the 401(k) is $44,000 despite the fact that the $15,000 voluntary contribution calculates to a $75,000 employer match.
III. 404 Limitation
The 404 limitation controls the maximum dollar amount an employer can contribute to the company's plan during the year. Employer contribution can be in various forms, including profit-sharing and matching contributions. The 404 limitation can not exceed 25% of the company's payroll (total amount of all employees' compensations), prior to an employee deferrals, with the following stipulations: The employees' compensations used in the calculation must be eligible to participate in the 401k, and wages in excess of $220,000 cannot be factored into the calculation.
Examples: (1) A company with 10 employees has an annual gross payroll of $1,000,000. No employee earns more than $2000,000 per year. The most that the employer can contribute to the 401(k) is $250,000 across all participants. (2) A company with 3 employees has a gross payroll of $600,000. Employee A earns $200,000, Employee B earns $250,000, and Employee C earns $150,000. The rule 404 calculation can only recognize the first $220,000 of Employee B's compensation, thus reducing the eligible payroll to $570,000 instead of $600,000.
