Plan Options

Our IRS-approved prototype 401k plan allows for significant customization

Each 401k Easy system includes an IRS-approved prototype 401k plan that we work with you to customize to your 401k needs. Ours is NOT a cookie-cutter 401k plan with take-it-or-leave it investments like with some 401k plans designed for small businesses.

Things your company defines for its 401k Easy plan include:

Your 401k participation eligibility requirements
Your 401k employer matching contribution formula, should you choose to include such contributions
Your 401k employer profit-sharing contribution formula, should you choose to include such contributions
Your 401k employer qualified nonselective contribution formula, should you choose to include such contributions
The vesting formula(s) to be applied to any employer matching and/or profit-sharing contributions, should you choose to include such contributions (qualified nonselective contributions are, by law, 100% vested when made)
The 401k investments you want to offer
Your 401k loan policy, should you choose to include 401k loans in your 401k plan
Your automatic enrollment default investment choice and contribution rate, should you choose to use automatic enrollment in your company plan
Whether or not your plan will be run by the safe harbor method of 401k plan administration and, if so, applicable employer contribution formulas

We offer free help with understanding each of your 401k plan customization options, so you can make educated decisions as to what will be best for your company and its employees. For help with specific topics, we recommend completing the appropriate Order Form and mark "Unsure. Please contact..." for relevant items. Completing an Order Form IN NO WAY obligates you to purchasing anything; it simply gives us the information we need about your company's size, etc., to answer questions regarding your potential 401k plan.

Within parameters set by law, you can have us edit your 401k plan down the road, if you like. You are never locked into the decisions you find suitable today. (If any edits you later have us make to your 401k plan mean re-customization of your 401k plan administration software and/or amendment of your official 401k Plan Adoption Agreement, we reserve the right to charge a fee of up to $500 for system re-customization; re-customization fees are a function of the complexity of the system and document changes required, and in most case are less than $200, if not waived completely.)

Your customization options

The below chart shows the 401k plan customization options allowed by the government regulations (and therefore in 401k Easy) and within that spectrum those typically recommended for a first-time plan.

Understanding the potential effect each option has on a 401k plan's popularity and thus its worth cannot be universally mapped out, as such vary with company size, worker preferences and other company-specific parameters. We are happy to discuss potential effects with you and recommend that interested parties submit the appropriate Order Form and use the "Unsure. Please contact..." buttons to indicate about which items you need more information. As explained in the No Money Due at This Time: The Order Fulfillment Process section (see above), submitting an Order Form in no way obligates your company to placing an order.

Age Requirement
Anything from none to 21 years of age 21 years of age (we recommend that participation begin on the first day of the first month after the person meets the plan's eligibility requirements)
Length of Service Requirement
Anything from none to 1 year of service 3 months of age (we recommend that participation begin on the first day of the first month after the person meets the plan's eligibility requirements)
Union Membership
OK to exclude employees whose service is governed by a collective bargaining agreement Exclude union employees
(Matching, Profit-Sharing and/or Qualified Nonelective)
Cannot make total contributions to any employee account over the annually-adjusted total allowed contribution amount. For more information, see "401k Contribution Guidelines and Limitations" within our 401k Basics page. Allowed in all forms but not mandatory. Contact us to discuss your particular situation.


anything less stringent than either:

(a) No vesting earned until the person has participated in the plan for five years, then 100% vesting after five years, or

(b) Seven Year Formula:
0% vested for the first 2 years of participation
20% vested after 3 years
40% vested after 4 years
60% vested after 5 years
80% vested after 6 years
and 100% vested after 7 years of participating in the plan.
Full, immediate vesting


Five Year Formula:
20% vested after 1 year of participating in the plan
40% vested after 2 years
60% vested after 3 years
80% vested after 4 years
100% vested after 5 years of participating in the plan.
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" with respect to offering ample variety, among other things, of 401k investment opportunities Both individual no-load mutual fund families (including no-load institutional mutual funds) and self-directed brokerage accounts are allowable; see our Investments pages for information that will help you determine which (perhaps both) best suit your 401k needs.
401K LOANS Inclusion or exclusion is allowed. Allowed but not mandatory. Not recommended for a 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 infringements upon employee rights. Allowed but not mandatory. No recommendation; consult your legal advisor.
* Understanding the potential effect each option has on a 401k plan's popularity and thus its worth cannot be universally mapped out, as such vary with company size, worker preferences and other company-specific parameters. We are happy to discuss potential effects with you and recommend that interested parties submit the appropriate order form and use the "Unsure. Please contact..." buttons to indicate about which items you need more information. As explained within "No Money Due at This Time: The Order Fulfillment Process" (see above), submitting an order form in no way obligates your company to placing an order.

Additional recommended parameters

In addition to the above, we generally recommend the following for 401k Easy plans:

PLAN YEAR January 1 - December 31
EARLY RETIREMENT AGE No early retirement age
HARDSHIP WITHDRAWALS Include (mandatory under IRS regulations)
PARTICIPANT ACCOUNT STATEMENTS Monthly. With 401k Easy, plan participants have the self-service freedom to view/print account statements at any time.
* Understanding the potential effect each option has on a 401k plan's popularity and thus its worth cannot be universally mapped out, as such vary with company size, worker preferences and other company-specific parameters. We are happy to discuss potential effects with you and recommend that interested parties submit the appropriate order form and use the "Unsure. Please contact..." buttons to indicate about which items you need more information. As explained within "No Money Due at This Time: The Order Fulfillment Process" (see above), submitting an order form in no way obligates your company to placing an order.

The safe harbor administration option

The IRS offers an alternative means for achieving 401k plan balance: The safe harbor method of 401k plan operation lets 401k plans skip their annual 401k discrimination testing so long as the sponsoring employer meets certain employer 401k contribution requirements that are designed to ensure broad participation in the company plan; the employer, too, must provide 100% immediate vesting of the contributions.

To qualify a 401k plan as a safe harbor plan, an employer must make matching contributions that fulfill the below requirements or make nonselective contributions equal to 3% of each eligible employee's compensation.
Nonselective contributions are made to all eligible employees, regardless of if the employees participate in the company 401k plan. Matching contributions, on the other hand, being based upon salary deferral amounts, are made only to active 401k participants' accounts.
If the employer chooses to make safe harbor matching contributions, those contributions must meet two requirements: First, each non-highly-compensated employee must receive a dollar-for-dollar match on salary deferrals up to 3% of compensation and a 50¢ to the dollar match on salary deferrals from 3% to 5% of compensation. Second, the rate of any matching contributions being made to highly compensated employees cannot exceed that being made to non-highly compensated employees.

The employer must provide annual information to employees explaining the 401k plan's safe harbor provisions and benefits, including that safe harbor contributions cannot be distributed before termination of employment and that they are not eligible for financial hardship withdrawal.

Your 401k Easy system includes such notification within your customized 401k plan's Summary Plan Description, a document for prospective and active plan participants.

If you don't choose the safe harbor method of 401k plan administration, we encourage you to use 401k Easy's online point-and-click compliance testing every month to keep well apprised of your plan's health so there are no surprises when your plan is subjected to its mandatory year-end tests.
Monthly testing takes only seconds with 401k Easy, and frequent testing means you can spot and correct undesirable trends before they compound.
You can test your company's 401k plan for compliance any hour of the day or night, and day of the week, from any computer with Internet access.

The Roth 401k plan option

As the name implies, a Roth 401(k) combines features of the traditional 401(k) with those of the Roth IRA. The Roth 401(k) is offered by plan sponsors alongside a traditional 401(k). Employees make contributions to the Roth 401(k) in addition to (or as an alternative to) making contributions to their traditional 401(k). Unlike a traditional 401(k) contribution, which is always pre-tax, all Roth 401(k) contributions are made with the employee's after-tax dollars. As with the traditional 401(k), the participant's Roth 401(k) contributions grow tax-free. But unlike traditional 401(k)s, withdrawals taken from the Roth 401(k) during retirement not subject to income tax, provided the account holder is 59 1/2 and the Roth 401(k) contributions have been held in the account for a minimum of five years.

The Roth 401(k) can offer advantages to high-income individuals who haven't been able to contribute to a Roth IRA because of the income restrictions. (Eligibility for 2009 phases out between $105,000 and $120,000 for single filers and $166,000 to $176,000 for those who are married and file jointly).

Roth 401(k) accounts are subject to the contribution limits of regular 401(k)s - $16,500 for 2009, or $22,000 for those 50 or older by the end of the year - allowing individuals to stock away thousands of dollars more in tax-free retirement income than they would through a Roth IRA. (In 2009, Roth IRA contributions are limited to $5,000 a year, or $6,000 for those 50 or older.)

The hitch: Those limits apply to contributions to both types of 401(k) plans, so participants can't save $16,500 in a regular 401(k) and another $16,500 in a Roth 401(k). Employees who are offered this option face a difficult choice: Contribute to a Roth 401(k) and suffer a cut in take-home pay (since contributions are made with after-tax dollars), or stick with a traditional 401(k) and hope that in retirement, their tax rate will be lower than it is now. Alternatively, they could hedge their bets by contributing to both accounts.

If the employee expects tax rates to be the same or higher in retirement than it is now, he or she might be better off with a Roth 401(k). This is likely to be the case with young people who are just starting their careers and expect their income to increase in the future. If the employee is in peak earning and anticipates his or her tax bracket will be lower in retirement, then continuing to use a traditional 401(k) is probably the best option. In reality, of course, things are much more complicated. For one, no one can predict with certainty what tax rates will be in the future, though the general consensus is that they're likely to rise to help the government offset growing budget deficits and pay for Social Security and Medicare.

No mandatory withholding for in-plan conversions of 401(k)s to Roth Rollovers. Plan sponsors who are allowing direct Roth rollovers from 401(k) and 403(b) plans into Roth Rollovers don't have to worry about mandatory withholding for those "distributions." According to a notice posted by the Internal Revenue Service on its website, mandatory 20% withholding does not apply to in-plan Roth direct rollovers.

More specifically, the IRS allows participants to make rollovers from their 401(k) and 403(b) plans to their designated Roth accounts (an "in-plan Roth rollover") after September 27, 2010. The taxable amount rolled over is includible in income equally in 2011 and 2012, unless the taxpayer elects to include it in 2010. The additional tax under section 72(t) does not apply to these rollovers.

The IRS says that the amount rolled over should be reported in box 1 (Gross distribution), the taxable amount in box 2a, and any basis in the rollover in box 5 (Employee contributions). Further, Code G in Box 7 on Form 1099-R should be used. The notice goes on to say that distributions made to plan participants in 2010 from designated Roth accounts must be reported on a separate Form 1099-R, and that the portion of a distribution from a designated Roth account that is allocable to an in-plan Roth rollover must be reported on a Form 1099-R. "Report the distribution as you would any other distribution from a designated Roth account; however, in the blank box to the left of box 10, enter the amount of the distribution allocable to the in-plan Roth rollover".

Traditional 401(k) Contributions Roth 401(k) Contributions
When you will pay taxes on your contributions You pay the tax upon withdrawal. Contributions are tax-deferred, so current taxes are reduced. You pay regular income tax on your contributions before the money goes into your account. Current taxes are not reduced.
When you will pay taxes on any investment earnings You pay taxes on the full amount of any distribution, including earnings, at ordinary income tax rates in effect upon withdrawal. Your contributions have already been taxed, so there is no tax on them and no taxes on any earnings if you take a qualified distribution.
Qualified distribution rules* Contributions and any earnings remain in account until age 591/2 or a separation from service that qualifies for retirement distributions. Withdrawals are subject to current ordinary income tax at withdrawal (and a 10% tax penalty may apply before age 591/2) unless the tax deferral is continued. Contributions and earnings are distributed tax-free if they meet the requirements of a qualified distribution; earnings in a non-qualified distribution are subject to current ordinary income tax (and a 10% tax penalty may apply before age 591/2) unless the tax deferral is continued.
Impact of contributions on take-home pay Since contributions are pre-tax, your current income tax is reduced and each $1 contributed reduces your take-home pay by less than $1. Because you pay current taxes on your contributions, take-home pay is reduced dollar for dollar by your contributions.
Rollovers from your account You may roll over your account balance upon termination to a traditional IRA, a 401(k) plan or another qualified employer-sponsored plan. You may roll over your account balance upon termination to a Roth IRA or another Roth 401(k) or Roth 403(b) account in a qualified employer plan.

Note: For purposes of the 5-year rule for qualified distributions, the date of the initial contribution to a Roth IRA governs.
Taxes on employer match, if applicable Employer matching contributions are made on a pre-tax basis; contributions and any earnings are taxable upon withdrawal. Same. The employer match is not treated as a Roth contribution.
Required minimum distributions You must begin required minimum distributions by April 1 of the year following the year in which you reach age 701/2 or at retirement, if later. You must begin required minimum distributions by April 1 of the year following the year in which you reach age 701/2 or at retirement, if later.
Loan and hardship Account balances are available for 401(k) loans and hardship withdrawal if the plan allows. Contributions are available for 401(k) loans and hardship withdrawal if the plan allows.

*For purposes of qualified distributions, disability must meet the definition stated in Internal Revenue Code Section 72(m) (7).

Cross-tested 401k plans, including "age-weighted" and "new-comparability" plan options

Do Cross-tested 401k plans make economic sense for very small companies?
The "cross-testing" plan configurations described below require specialized, customized prototype plan documents that are not included in our conventional 401k plan offerings. These specialized plan documents add additional plan set-up costs. In addition, compliance testing of cross-tested plans is not automated, and thus requires manual calculations, also at additional cost. Based upon our experience, we do not recommend cross-tested plan configurations for very small companies. In our opinion the additional costs, when compared to the modest increase in deferral benefits that accrue to the owner, are not economically justified. Based upon our 30+ years' experience providing 401k plans to small companies, we recommend against using a "cross-tested "configuration for plans with less than 20 participants, because of the added complexity, cost, and increased potential of attracting an IRS audit.

What is a cross-tested 401(k) plan?
There are several ways a 401k can be "tested" to determine its compliance with US Department of Labor regulations. If a 401(k) passes just one of several compliance tests, it is deemed "qualified" under the governmental regulations. If a 401(k) cannot pass any of the various compliance tests it is deemed "disqualified," which means the plan loses all its tax-advantaged benefits, resulting in serious tax problems for the employer and plan participants alike. It is essential that 401(k) compliance be checked frequently, and passes at least one compliance test annually.

The main compliance violation the government tries to guard against involves a plan that gives significantly disproportionate benefits to highly-compensated employees (HCEs) to the determent of the non-highly compensated rank and file (NHCs). An individual is a HCE if he or she earns over a certain dollar amount (e.g., $110,000 in 2009) or is a "more than 5% owner" in the business.

In the cross-testing methodology, the company's 401(k) profit sharing contributions to plan participants are converted mathematically to projected benefits at retirement. These projected benefits are then tested against each other to ensure that the plan does not discriminate in favor of HCEs. Our online software has 401(k) compliance testing "build-in" and available to be run anytime to monitor the plan's compliance status.

What is the advantage of a cross-tested 401(k) plan?
In comparison to other compliance tests, a cross-tested 401(k) permits substantially larger contributions be made to HCEs, or older participants, without violating compliance regulations.

Example: Suppose a 60 year-old business owner (HCE) has two younger employees, both non-highly compensated, and wants to make a large profit-sharing contribution to himself. In this example the business owner pays himself $100,000 annually, and he pays his two 30-year old employees $30,000 annually. If a standard profit-sharing contribution is allocated to the owner and the two employees, each individual will receive the same contribution percentage. In a cross-tested plan, however, the goal is to ensure that the contribution each individual receives will provide the same projected benefit at normal retirement age, generally age 65. To achieve this goal a larger contribution must be made for the 60 year old business owner than for the two 30-year old employees. The business owner has fewer years for the contributions to accumulate before he reaches age 65 and the contributions for the younger employees has 35 years to accumulate, so smaller contributions are made without violating non-discrimination regulations.

Must an employer make a contribution to a cross-tested 401(k) plan every year?
Yes, a minimum contribution for each participant is required if a contribution is made to the HCEs. Generally, the non-highly compensated employees (NHCEs) must receive an allocation for the year equal to the lesser of either 5% of compensation, or 33% of the highest contribution rate provided to any HCE.

If a contribution amount passes the test in one year, will the same contribution pass the test in the subsequent year?
Not necessarily. Because of employee attrition, new hires and the fact that employees grow older each year, a contribution that passed the nondiscrimination test in one year might not satisfy the test in the subsequent year. Therefore, the proposed contribution for each year must be tested in order to determine whether it would pass the test.

How is a cross-tested 401(k) plan designed?
Generally, a cross-tested 401(k) is designed by dividing the employees into two main groups, the most typical division being HCEs and NHCEs. In cross-testing the employer is permitted to make additional groups within these two main groups, and separate contribution amounts within each group. The employer then places the employees receiving the highest allocations in one group, and the other employees in the other groups. The employer can establish groups with characteristics unique to that group (e.g., highly compensated employees who are owners, highly compensated employees who are not owners, paralegals, etc.). Although the cross-testing rules do not impose any requirements for defining groups, the employer may not use criteria such as race, religion or gender.

Although the rules do not specify a method for allocation, the cross-tested plan typically allocates the profit-sharing contribution uniformly among employees within a given group. The employer will make a contribution to a specific group, and then allocate the contribution proportionately based on the compensation of all participants in that group. The separate contribution made for each of the other groups is allocated in the same manner (i.e., based on the compensation of all participants in the group).

How many cross-testing methods exist?
There are two distinct methods for cross-testing a plan. The original cross-testing method relied upon the age of plan participants in determining compliance. This method, called "age weighting" resulted in the following:
Profit-sharing contribution based upon participant's age.
Advantaged older plan participants and disadvantaged younger plan participants.
Resulted in HCEs getting unequal amounts of profit-sharing contributions.

The second method for cross-testing is called "new comparability", and it differs from "age weighting" in the following ways:
Profit-sharing contribution is based upon a participant's classification within the organization.
Advantages owners and key employees over all other plan participants.
Owners receive the same profit-sharing contribution amount.

Comparison of traditionally-tested 401(k) and a cross-tested 401(k). Notice how much more money the HCEs are able to receive in company profit-sharing contributions without violating DOL antidiscrimination rules.

Employee Age Compensation Traditional 401(k) PS Allocation Cross Tested 401(k) PS Allocation

You are never locked into your option decisions

You are never locked into your 401k Easy plan and/or system design decisions. We have many clients that, for instance, exclude 401k loans in the early years of their plan, then add the option in at a later date.

Know that you can have us modify your plan and system design at any time. We do reserve the right to charge for changes initiated by you that require us to re-customize your 401k online software and/or official 401k documents. The maximum charge for re-customization work is $200 per instance and depends upon the complexity of the changes required.


Free technical support and training to get your 401k plan off the ground

Your 401k Easy system comes with user-friendly step-by-step instructions for launching your company plan, introducing it to your employees, and completing its management tasks. We also provide a free-access online support center dedicated to 401k plan operation via 401k Easy.

In addition, we offer our plan sponsors FREE one-on-one support and training via telephone during each plan's launch period. Common topics such as Marketing Your 401k Plan to Your Employees, and Signing Up Plan Participants are also covered in our online downloadable literature, however we're here to help if you have any questions or just prefer hearing the information from a friendly, experienced 401k Easy representative .

Telephone support lines are open weekdays from 10 a.m. to 4 p.m. Pacific Time. (The phone number is provided with your access code information after you purchase your system and we have it all customized to your desired specifications.)
E-mail support is available directly from your online Plan Sponsor and Plan Participant Gateways.

IRS Reporting Support

401kFedForms offers free step-by-step 5500-SF instructions. As an option, for only $545 we will prepare your 5500-SF!

401k Easy's plan administration functions collect most of the information needed to complete 401k-related federal reporting forms and schedules.

As part of your 401k Easy subscription you receive access to 401kFedForms (, a website designed to simplify year-end 401k federal reporting.
401kFedForms shows you which IRS Forms and Schedules are relevant to your particular 401k plan.
401kFedForms' annotated versions of each Form and Schedule tell you where within your customized 401k Easy Plan Sponsor Gateway to find needed information.

Let us do your IRS 5500-SF for you...affordably!

We offer to you an easy, very low cost option for fulfilling this annual IRS filing requirement. Pension Systems Corporation will prepare your 401k plan's IRS Form 5500-SF (and 60-day extension) for only $545! In addition, at no extra cost, we will prepare the required Summary Annual Report (SAR). All for only $545… a small fraction of what the typical accounting firm, CPA, or tax preparer will charge for the same service.

If you want to learn more about this easy Form 5500SF filing option, please call Farah Vaguchay, Pension Systems Corporation Client Services Manager, at (800) 660-0050 or send an email to

Topics covered within 401kFedForms

401kFedForms topics include:

Gathering the Information You Need (from your customized 401k plan administration software)
Determining the IRS Forms and Schedules You Need to Complete
Help with completing Form 1096
Help with completing Form 1099-R
Help with completing Form 5500-EZ
Help with completing Form 5500
Help with completing Form 5558
Help with completing Form 945
Help with completing Schedule H (limited instruction only; not applicable to most 401k Easy plans because only relevant to plans with more than 100 eligible employees)
Help with completing Schedule I
Help with completing Schedule P
Help with completing Schedule T
Help with completing your plan's Summary Annual Report (ready-to-complete PDFs are available for download)
Calculation worksheets

Visit for a preview.

Annual updates

We update 401kFedForms at least annually to match any changes to applicable IRS Forms, Schedules and Summary Annual Report requirements.

401kFedForms is not tax advice

401kFedForms is a complement to, not a replacement for, published IRS instructions.

401kFedForms is meant to simplify our 401k clients' federal reporting by helping them quickly locate pertinent information.
401kFedForms is not meant to offer tax or financial advice.

We can prepare SIGNATURE-READY forms for your company, if you like

Following the step-by-step instructions to complete your 401k plan's year-end federal reporting forms is rudimentary. If you prefer, though, you can hire us to prepare your signature-ready IRS Form 5500 for you.

We will prepare and file your 401k plan's Form 5500SF, plus prepare your 401k plan's Summary Annual Report (SAR) for a total cost of only $545…a small fraction of what the typical accounting firm, CPA, or tax preparer will charge for the same service.

If you want to learn more about this easy Form 5500SF filing option, please call Farah Vaguchay, Pension Systems Corporation Client Services Manager, at (800) 660-0050 or send an email to

Investment Support

Providing investment information helps your company meet its ERISA 404c compliance responsibilities

ERISA Section 404c says companies that sponsor a 401k plan need to, among other things, provide their employees with adequate information about 401k investing, their plans' particular 401k investments, as well as related matters.

401k Easy includes substantial investment and investing information as well as links to external sources that your employees can choose to access as they see fit:

Our Plan Participation Gateway houses, among other things, general and plan-specific disclosure and investment education information. Your employees have free access to your company plan's customized Plan Participation Gateway from any location connected to the Internet.
In addition, 401k Easy provides your employees with Internet links to personal investment advice services that are available online and/or from SEC-registered Investment Advisors (see below for a partial listing of such services).

Please note that the auxiliary investment advice services are NOT included with 401k Easy. They can, however, be paid for by the plan participants who choose to use them (see topic 3, below), and they offer benefit to your 401k plan simply in being mentioned.

The investment advice services linked to 401k Easy are INDEPENDENT investment advisors; none sell mutual funds, stocks, insurance products or any other investments nor receive commissions of any kind on investments they recommend. In addition, none have paid any fee or otherwise compensated 401k Easy for being mentioned within our 401k websites.
Informing plan participants about such 401k investment guidance services, coupled with providing the basic investing information included in your customized 401k Easy site and provided by the investment companies, helps you fulfill your ERISA 404c responsibility to provide adequate investment information and guidance to 401k participants, yet the process requires minimal effort and expense.
See below for a listing of personal investment advice services that are available online.

Investing guidance services can boost plan participation + allocation rates

Individual retirement investment guidance services help your plan participants decide how much to defer into your company 401k plan and how to invest those deferrals. The services are geared toward people who are at least a few years or more away from retirement (versus the ready-to-retire or already retired).

Advice received from investing guidance services often boosts participation in 401k plans:

Statistically speaking, 401k participants left on their own rarely defer into their 401k account as much as experts would recommend, especially down the road, years after initially joining the plan, when income has generally increased (often substantially) yet participants have not accordingly adjusted their contribution rates.
Most non-salaried employees generally do not join 401ks, even though they, too, could benefit greatly from the tax-deferred savings potential the plans offer. Having them consult with an independent professional retirement planner can motivate them to join their company 401k.
Because unconcealed 401k participants often don't invest their deferrals optimally nor adjust their investment allocations as they move through their employment years, most 401k participants don't maximize their account growth potential.
Helping your employees find professional, unbiased retirement planning advice that they can afford can help boost your plan's participation and deferral rates.

Investment guidance information and services help individuals answer three important questions:

Will I have enough to retire?
How should I invest for retirement?
What do I do when markets change?

Paying for investing guidance services

Most personal retirement investing services allow for either the employer to pay for the service or for the individual employees using the service to pay.

All of the online 401k investment guidance services described in this website permit individual employees using the services to pay for the advice themselves. None obligate the employer to pay any fees for employees' use of the 401k investment guidance services.
Some investment guidance services are tetchier and more Internet-savvy while others place emphasis on human resources. Having your employees pay for investment advice services on an individual basis grants each employee the freedom to hire the professional and the approach he or she favors -- or not hire anyone at all.

Online individualized retirement planning + 401k investing advice services

Below, listed in alphabetical order, are the industry leaders in online retirement advice. Informing 401k participants and prospective participants about more than one service gives the participants the freedom to choose the service best-suited to individual needs.

All of the below are INDEPENDENT investment advisors. None sell mutual funds, stocks, insurance products or any other investments nor receive commissions of any kind on investments they recommend. In addition, none have paid any fee for their listing herein nor otherwise compensated 401k Easy for inclusion in our 401k websites.
All of the below offer personalized, specific information about how much to invest in which plan investments.
The below are listed in alphabetical order.
The below is also accessible within each of our client's customized 401k Easy Plan Participation Gateway.

Clear Future
Bases recommendations on retirement income goals, not risk toleration

Derives several potential investment strategies based on investments available and retirement income goals

Ongoing projections include showing potential effects of holding or selling during turbulent market times

Integrated with Morningstar reports and information (quick access to "view Morningstar report" on investments being considered)
By Morningstar, the industry leader in providing mutual fund, stock and variable-annuity investment information
Financial Engines
FOR FREE: Extensive "Monte Carlo" style of modeling that, rather than assuming static investment returns and inflation rates over time, takes into account numerous possible economic cycle scenarios based on varying combinations of future investment returns and inflation rates in determining the probability that the client will reach his/her retirement goals

FOR PAYING CLIENTS: Advice on exactly how much to invest in which of your plan's specific 401k investments to improve your chances of reaching your retirement goals; daily tracking of the clients 401k investments' performances and their effect on his/her account; ongoing advice about needed changes in the account due to current and projected investment performance and economic cycles

Does not counsel on investments outside the 401k but does take client's outside holdings into account in making 401k recommendations
Computerized modeling system by Nobel Prize-winning economist Bill Sharpe and others

Highly touted by The Los Angeles Times (8/5/99), San Francisco Chronicle (11/23/99), and The Wall Street Journal (8/12/99), among others

$28.95 per 3 months (April, 2000)

Accepts fiduciary responsibility for advice it gives, relieving employers from such responsibility
The Motley Fool
The Motley Fool (TMF), founded in 1993 by brothers David and Tom Gardner, is a multi-media financial advice and information service distributed by website, syndicated radio programs, publications and seminars.

All TMF programs are geared to the non-professional novice investor. One of the key benefits of TMF educational materials and services is that complex investments and financial strategies are described in simple layman's terms suitable for mass market appeal.
Web site contains interactive financial planning tools, unbiased monetary advice and educational services to help investors manage their retirement savings.

TMF also maintains a financial help line and a number of other fee-based services, and provides advice about taxes, employee benefits, budgeting, retirement, college funds, insurance, estate issues, investments, etc.
mFuture formerly Emergent Advisors
Investment guidance for either only 401k assets or all retirement assets

Customized risk profiling

Portfolio tracking and analysis, including a comparison between current and recommended allocation levels

Advice on employee stock plans

One-year, five-year, at-retirement portfolio simulation
By Morningstar, the industry leader in providing mutual fund, stock and variable-annuity investment information

Other services include The Wall Street Journal favors Financial Engines services to Direct advice's for being simpler and easier to understand, and for more useful projections about investments actually meeting your retirement goals (Thursday, August 12, 1999) -- however, your 401k plan participants might find it valuable to know that is out there, too.

Guided Choice ( offers Internet-based financial analysis of 401k participant accounts in a format that is easy to use for even the most novice investor. Guided Choice solutions offer participants unbiased, personalized, expert investment advice based upon mathematical formulas and algorithms.

Professional help with educating plan participants

Beyond the enrollment materials, video, and online resources included with 401(k) Easy, additional professional help in educating plan participants is available from various consultancies.

Education consultants render unbiased, factual information and guidance in all aspects of 401k participation. Plan participants appreciate the self-serve functions of 401k Easy and will also benefit from a customized enrollment meeting conducted on-site by a knowledgeable 401k Education Specialist. The Education Specialist explains the mechanics of 401k participation and the advantages of enrolling. Key components include:

How 401k plans work
The inherent tax advantages of participating in a 401k plan
Proven, time-tested, unbiased information and techniques for participants to use in selecting 401k investments that fit their needs and objectives.

Group presentations usually run about one hour and include time for questions and answers. These presentations are performed throughout the day to accommodate varying employee schedules. 401k Education Specialists are retained by the plan sponsor on a per diem basis, and fees are negotiated directly between the two parties.

There is a common misperception that investment education is required under Internal Revenue Code Section 404c, the idea being to transfer investment responsibility and liability to the employees. There is no such requirement, however. In fact, footnote 1 to the Department of Labor Interpretive Bulletin states:

"The section 404(c) regulation conditions relief from fiduciary liability on, among other things, the participant or beneficiary being provided or having the opportunity to obtain sufficient investment information regarding the investment alternatives available under the plan [such as prospectuses] in order to make informed investment decisions. Compliance with this condition, however, does not require that participants and beneficiaries be offered or provided either investment advice or investment education, e.g., regarding general investment principles and strategies to assist them in making investment decisions." 29 CFR Sec 2550.404c-1(c)(4).

401k Easy helps your company meet its 401k plan's 404c requirements on many fronts

With 401k Easy, meeting ERISA 404c requirements regarding investment diversity and availability of pertinent information is easy:

The 401k Easy software permanently logs all employees' requests for information regarding 401k enrollment, investing, loans, hardship withdrawals and more.
Your plan has can choose from a nearly limitless array of 401k investment opportunities - including no-load mutual funds (including no-load institutional mutual funds) and self-directed brokerage accounts.
Your 401k plan participants' can change their investment choices and/or contribution levels as often as you choose to allow.
Participants' accounts receive daily asset valuation.
Participants receive MONTHLY statements showing their 401k account activity (deposits, distributions, rollovers, etc.).
Participants have 24-hour-a-day, seven-day-a-week access to their personal account information and easy access to prospectuses for all 401k investments offered within your plan.
401k Easy includes links to the online retirement guidance and education services described above. Participants can individually choose to sign up for services from such industry leaders as Financial Engines. Individuals pay for the services themselves, yet your company benefits in meeting its 404c compliance by providing the introduction.
401k Easy includes plan-specific disclosure materials for your employees.
401k Easy includes general 401k plan and investment education materials for your employees.

ERISA 404c protection for plans that use self-directed brokerage accounts

Because self-directed brokerage accounts do not fall under the definition of "designated investments" for 401k plans, companies have no specific sets of information, such as investment prospectuses and performance information, that they must provide to plan participants regarding self-directed brokerage account investments. What does need to be provided is:

A statement that the plan intends to be a 404c plan and that the fiduciaries will be relieved of liability.
The identity of a 404c fiduciary.
A description of available investment alternatives, with specific information about designated alternatives (i.e., specific mutual funds being offered within the plan in addition to the self-directed brokerage accounts).
General disclosure regarding investment through a self-directed brokerage account.

With the exception of disclosure regarding investment through self-directed brokerage accounts, the above must also be supplied for plans using "designated" investments, such as mutual funds.

With 401k Easy, you're covered - Your plan's customized Summary Plan Description, Plan Enrollment Form and related documents provide the above 404c-related information to your employees, and all 401k Easy documents are easy for lay people to read and understand.

For more information about designated and no designated investments and their 404c compliance ramifications, please read Panel Publishers 401(k) Advisor article, "Personal Brokerage Accounts: Is 404c Protection Available?" September, 1999.

About the required fidelity bond (ERISA bond/fiduciary bond)

ERISA regulations require that all pension plans, including 401k plans, be insured by an ERISA bond that has a payout equal to 10% of plan assets or $500,000, whichever is less. The annual premiums for these special ERISA bonds (also called fiduciary bonds) are very low, averaging approximately $200 per year or less.

An ERISA bond that covers a 401k plan with $100,000 in assets can cost as little as $100 per year; an ERISA bond covering plan assets of $1 million costs approximately $275 per year.

ERISA bonds are not only inexpensive, but they are readily available and easy to purchase. Your business insurance agent is the best person to contact for ERISA bond coverage. Insurance companies that provide inexpensive ERISA bond coverage include:

CHUBB Insurance (contact local agent)
Hartford Insurance, call (888) 656-0817
Travelers Insurance, call (860) 954-2650
Maloney & Associates, call (760) 738-2610

Below are answers to a few frequently asked questions about ERISA bonds:

What i the difference between an ERISA bond, a fidelity bond, and a fiduciary bond?
ERISA bonds and fiduciary bonds are essentially amended fidelity bonds. All three respond to claims involving dishonest acts on the part of asset investment advisors or the employer. The ERISA bond, sometimes referred to as a fiduciary bond, pays claims directly to the plan participants. The fidelity bond pays the claims of the investment advisor that resulted from the dishonest acts of the investment advisor's employees.

How do fidelity bonds and ERISA or fiduciary bonds differ from errors omissions insurance?
The fidelity, ERISA and fiduciary bonds cover against losses due to a criminal act. Errors and omissions insurance provides employers and advisors with coverage against losses due to any actual or alleged negligent act or error committed while engaged in performing professional services.

What's the difference between errors and omissions insurance and fiduciary liability insurance?
Errors and omissions policies protect the investment advisor and employer from losses due to an actual or alleged negligent act. In comparison, fiduciary liability insurance is a sub-category of errors and omissions insurance, and provides additional coverage against a breach by any plan fiduciary. This coverage is not the same as provided by an ERISA bond because it does not insure against criminal acts on the part of a plan fiduciary.

Ensure your plan's appeal with great investments: The 3 steps to successful investing

One reason to strongly consider 401k Easy for your company 401k plan is the tremendous array of investments to which your plan will be privy.

It's no secret that appealing investments inspire initial as well as ongoing 401k participation. They are arguably THE key determinant to your 401k plan's health and success. (You'll already have nailed down convenience, accessibility, etc., with 401k Easy's user-friendly, 24-hour-a-day-accessible architecture.)

Of course, investments one employee finds appealing may not interest another; they may not even interest the first employee five or ten years from now.

So how do you select investments for your company 401k plan? 401k Easy gives you access to more than 600 mutual fund families representing more than 10,000 different mutual fund portfolios. Too, 401k Easy allows for self-directed brokerage accounts. Do you offer all those options? Not unless your employees have a tremendous amount of time on their hands to read through 10,000-plus investment prospectuses. So how then does a company sufficiently narrow the field without over-restricting it?

The below explains three fundamental principles to effectively choosing the investment options for a company 401k plan - not only in terms of the investments' appeal to your employees, but also in helping you meet relevant government regulations requirements for diversity, etc. The content has been written in terms of mutual funds but can easily be extrapolated to choosing self-directed brokerage accounts. And remember...

Your goal is to derive an investment lineup that will fit the needs and financial objectives of your company's potential 401k plan participants.
There is no single "best" lineup of investments.
Your choices are not set in concrete. 401k Easy allows you to add and/or remove investments from your plan if and when the need arises.
We derive no financial benefit or incentive from any mutual fund or brokerage company. If you contact us for help with choosing your plan's investments, you can be assured that our input has only your plan's health and appeal in mind.
We follow our own advice. Our investment recommendations will always focus on quality fund providers offering a wide spectrum of suitable investments, ones that span the range from the ultra-safe, low-risk, conservative investments to the highly volatile, high-risk, high-potential-return investments; such can satisfy a wide range of investors, ones with varying personal needs, investment objectives and investing experience.
401k Easy contains an extensive catalogue of easy to understand literature to help your employees make educated investment decisions. We recommend that you, as an employer, refrain from dispensing investment advice. Instead, simply direct your employees to the quality materials contained within 401k Easy.

Principle 1: Diversification
The most common - and detrimental - mistake made in choosing plan (and personal) investments is to base a decision on an investment's performance history, particularly its recent performance history. Investment performance is cyclical: a mutual fund that's blazing hot today may be as cold as ice tomorrow, and vice versa. Past performance is no guarantee of future results. It should be considered as only one indicator of an investment's suitability.

A better approach is to let your investment objective be your primary guiding light. For choosing your company's 401k plan investments, your objective is to select a spectrum of investments that will prove appealing and satisfying to your employees' diverse investment needs. The spectrum, not fund-by-fund performance, is your quarry.

To achieve a suitable spectrum of investment options, select one, two or three mutual fund families, then choose a cross-section of funds from within each family. Mutual fund companies compete for investment dollars by trying to out-perform each other. Your employees can benefit from this competition with access to even a single reputable fund family; access to a second or third family grants added choice and flexibility. By listing a cross-section of investments within each family group, your employees will be able to find investments that suit their investing temperaments and needs, now and down the road.

At minimum, your plan needs to offer investments geared toward the following:

Preservation of Principal - Money market funds are the default choice for "safe" investments. Remember, though, that they are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Income - For a steady stream of income, your plan will need funds that invest in bonds. Like stocks, bonds experience fluctuating share prices, though generally to a lesser degree.
Income and Growth - Balanced funds, also known as "lifestyle funds," invest in combinations of stocks and bonds. Balanced funds that hold a greater percentage of stocks over bonds are more volatile and potentially more profitable. Those that hold a greater percentage of bonds over stocks, on the other hand, are more stable but less likely to return big investment gains.
Growth - Stock funds (domestic or foreign) offer the greatest potential for long-term gain, but they also come with the highest risk: they're more volatile and have the greatest potential for posting investment losses.

Principle 2: Choose Investments That Fit Your Goals and Temperament -- and Those of Your Plan's Potential Participants
Stock and bond net asset values (share prices) fluctuate. Some fluctuate more frequently and more diversely than others. While this doesn't bother certain investors - ones, perhaps, with plenty of time before retirement, ones used to the ups and downs of investing, ones with other sources of emergency money - many investors prefer to avoid extreme volatility. As mentioned above, "growth" funds tend to be more volatile than "income and growth" funds, which tend to be more volatile than "income" funds, which tend to be more volatile than money market funds.

Investment returns should also factor into your decision. Compare investment returns to those of direct competitors' - not to those from a different class of funds. You can compare returns of competing investments using any of several online services, including Standard & Poor (, Morningstar (, Personal Fund's Online Fee Calculator (, Mutual Fund Investor's Center (, Smart Money Mutual Funds Research (

Don't be fooled by "cumulative total returns" showing how much an investment has grown or shrunk over several years. A large cumulative return when translated into average annual returns may not be large at all. For instance, a stock fund with a cumulative return of 101% over 12 years equates to an average annual return of only 6% compounded; such may or may not be competitive with competitors' funds or with the benchmark index.

Mutual funds, even no-load funds, are not free, nor, in general, are fees they charge closely regulated. The fees can vary widely from fund to fund (though competition, of course, does keep things in check to a degree). Each fund family sets its fees. The fees are spelled out within the investment prospectuses.

Mutual fund fees to look for include...

Expense Ratio - This is money deducted from a fund's earnings and assets to pay for annual operating expenses, including investment advisory fees, legal and accounting services, postage, printing, etc.
12b-1 Fees and Sales Charges - These pay the fund's marketing and distribution expenses and are incorporated into the expense ratio. Some include a sales charge to compensate sales personnel.
Trading Costs - The cost of trading securities, including charges such as brokerage commissions, are not included in the fund's expense ratio but do reduce the returns investors receive.

Most entities that provide and support 401k plan investments - mutual fund managers, fund distributors, asset custodians, asset trustees, investment brokers and advisors, plan administrators and record-keepers - earn at least a portion of their compensation from asset-based fees deducted from plan assets.

We at Pension Systems Corporation, however, are the exception to the norm: We do not earn any compensation -- directly or indirectly -- from our clients' 401k plan assets. In cases where rebates are offered on investments, we have the rebates returned to our clients or directly applied to reducing our clients' costs. Our published prices, available online for all to see, are the only net compensation we collect.

We do not accept any rebates or revenue sharing of fees deducted from our clients' plan assets unless those fees can be returned to the clients' plans or used by Pension Systems Corporation to offset plan expenses.

Asset-based fees are an unavoidable fact of life if your company uses mutual funds or self-directed brokerage accounts for its 401k. The cost of these asset-based fees should be factored in when determining the true, overall cost of your 401k - and the cost savings of 401k Easy returning such fees to clients when possible should be factored into our products' affordability.

For more information on asset-based fees, we recommend reading "Study of 401(k) Plan Fees and Expenses" by the US Department of Pension Welfare and Benefits.

Principle 3: Use a Long-Term Horizon When Selecting Your Investment Provider(s)
401k investments are long-term investment vehicles. They are neither designed nor intended for short-term results. Look towards fund companies that will stand up to the test of time.

The public image of the fund families you select for your company 401k plan will affect its popularity among your employees. As with other consumer products, mutual funds (and the companies that produce them) come in various shapes and sizes, with reputations and brand-name recognition to match.

Remember to consider...

Is the mutual fund company forthright? - If the company doesn't frankly discuss the potential drawbacks of an investment along with its attributes, go elsewhere.
Does the company follow a disciplined approach to investing? - Some companies do not ensure that their fund managers stick to the investment strategy described in the prospectus. Even the fund's portfolio name may be misleading; it may not reasonably represent the interlaying of stocks and bonds in the portfolio.
Does the company promote the recent fund performances? - You need to know how a fund has performed over the past three, five, ten years. Its performance during the last 24 months is inconsequential.
Does the company put experienced managers in charge? - How many years of experience does the manager have? What's his/her track record? Some companies allow relatively new managers to gain experience with their smaller funds.

We're Here To Help

The above are guidelines to help you select investments for your 401k plan that will encourage participation and effective retirement saving while ensuring that your company meets the federal mandates regarding 401k plan investment diversity.

We're here to help if you are still unsure of how to proceed with choosing investments for your 401k plan. Send an e-mail to, or call 800-660-0050.