FREQUENTLY ASKED QUESTIONS
Depending on the plan’s definition of eligibility requirements, you may be required to satisfy a pre-defined number of hours of service over a set period of time and also may be required to have reached a minimum age before becoming eligible for plan participation. If the plan defines eligibility service as one year, you can not be asked to complete more than 1,000 hours to be credited with one year of service. However, you must generally be employed for 12 consecutive months during which you have completed at least 1,000 hours if one year of eligibility service is required.
If the plan defines its eligibility service requirement as less than one year, no requisite number of hours may be required to be credited with such service. For example, if the plan defines eligibility service as 6 months of service and you have been employed by the employer for 6 months, you may be eligible to join the plan as long as you have satisfied any age requirement that may apply, regardless of the number of hours that have been performed during the 6 month period.
The answer depends on whether the employer has elected to incorporate a loan provision into the plan. If they have, then you are eligible to apply for a loan. If they have not elected to incorporate a loan provision, then loans are not allowed from the plan.
A participant loan is a plan feature that allows plan participants to borrow against their vested account balance. Obviously, as its name implies, the amount borrowed must be repaid to the plan, which is usually required through payroll deductions on an after-tax basis. Typically the interest charged for the loan is repaid to your account, however, this is not always the case. Check with your plan’s Plan Administrator for details.
Generally, although you may be eligible to apply for a loan, whether you are approved is a Trustee decision. The Trustee will review each application on a nondiscriminatory basis, but will be judged on the applicant’s credit worthiness, purpose of the loan and its term. Generally, participant loans may not exceed a 5-year term and can not be in amount greater than 50% of the participant’s vested account balance or $50,000.
Plan Trustee(s) may also restrict participant loans to certain reasons such as preventing foreclosure of the participant’s principal residence or for the acquisition of a principal residence, among others. There may also be a minimum loan amount imposed such as $1,000 and a one loan outstanding limit.
Please check with your plan’s Plan Administrator or your Summary Plan Description to see if your plan allows participant loans. If so, you can view and print a Loan Application and the plan’s Loan Procedures which detail the allowable circumstances for a participant loan to be granted, interest rate to be charged, etc. from the FORMS section of our website. You will need to obtain the Client Identification number from your Plan Administrator in order to access these items and may also need to download a free copy of Adobe Acrobat Reader software to view and print these forms. A link to the Adobe website is available in the FORMS section for your convenience.
The answer depends on whether the employer has elected to incorporate a hardship withdrawal provision into the plan. If they have, then you are eligible to apply for a hardship withdrawal. If they have not elected to incorporate this provision, then hardship withdrawals are not allowed from the plan.
If permitted by the employer, a participant may request a hardship withdrawal from their vested account balance if they have an immediate and heavy financial need and lack the resources from which to remedy such need. Hardship withdrawals can not be repaid to the plan. Generally, only the following reasons are valid to obtain a hardship withdrawal: unreimbursed medical expenses for the participant, the participant’s spouse, children and other dependents; the purchase of the participant’s principal residence; payment of tuition and related education expenses for the next 12 months of post-secondary education for the participant, the participant’s spouse, children or other dependents; or the need to prevent the foreclosure or eviction of the participant from their principal residence.
Generally, the following conditions also apply prior to obtaining a hardship withdrawal; the participant has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the employer; all plans maintained by the employer provide that the participant’s salary deferral contributions will be suspended for 12-months after the receipt of the hardship distribution; the distribution is not in excess of the immediate and heavy financial need although the participant is allowed to “gross up” the distribution for taxes; and all plans maintained by the employer provide than the participant may only make salary deferral contributions for the participant’s taxable year immediately following the taxable year of the hardship distribution not to exceed the applicable IRS annual salary deferral limit in effect for such year less any salary deferral contributions made by the participant in the year he/she received such hardship distribution.
Although the hardship distribution is generally eligible to be rolled over to another tax deferred vehicle, salary deferral amounts received as part of such hardship distribution, together with any amounts which are employer Safe-Harbor contributions, may not be rolled over to another tax deferred vehicle. Generally, the amounts distributed as a hardship withdrawal must have a mandatory 20% withheld for Federal Tax purposes. The participant, if under age 59 ½, must also pay a 10% premature withdrawal penalty when filing their annual tax return. Please see your tax advisor or CPA for further details.
Please check with your plan’s Plan Administrator or your Summary Plan Description for further details. If you believe you are eligible to receive a hardship withdrawal you may access the necessary application and related forms from the FORMS section of our website. You will need to obtain the Client Identification number from your Plan Administrator in order to access these items and may also need to download a free copy of Adobe Acrobat Reader software to view and print these forms. A link to the Adobe website is available in the FORMS section for your convenience.
Generally, yes. Your employer’s plan document will dictate whether rollover contributions are allowed into the plan and whether you must satisfy the plan’s general eligibility requirements prior to being eligible to roll this money into the plan. Most plans allow rollover contributions. In this way you can consolidate your retirement accounts into one plan and receive one benefit statement reflecting this money. The rollover contribution also avoids current taxation otherwise levied on plan distributions because you are depositing this money into another tax-deferred vehicle.
Please check with your plan’s Plan Administrator or your Summary Plan Description for further details. If rollovers are allowed and you have met the requirements proceed as follows. First, complete distribution paperwork from your prior 401(k) plan. This paperwork should have a section that must be completed for distributions that will be rolled into another qualified retirement plan. Once you have received the rollover check from the prior 401(k) plan you must complete a rollover form that indicates which funds you would like the plan Trustee to deposit the rollover amount by completing a rollover form.
A rollover form is available in the FORMS section of our website. You will need to obtain the Client Identification number from your Plan Administrator in order to access this form and may also need to download a free copy of Adobe Acrobat Reader software to view and print these forms. A link to the Adobe website is available in the FORMS section for your convenience.
A Safe Harbor 401(k) Plan is a relatively new type of 401(k) Plan that automatically meets certain IRS non-discrimination requirements, unlike a traditional 401(k) plan, if the employer commits to making one of two types of employer contributions. The first is a 3% of pay non-elective (profit sharing) contribution required to be made on behalf of any participant who has met the eligibility requirements for salary deferral contributions, whether or not the participant actually participates in the salary deferral arrangement. The second type of contribution is an employer matching contribution whose formula, in the aggregate, may not be less than 100% on the first 3% of a participant’s pay deferred to the plan and 50% on the next 2% of a participant’s pay deferred to the plan. A participant must actually participate in the salary deferral arrangement to be eligible for the employer matching contribution.
The employer’s chosen Safe Harbor contribution must be 100% vested when made for each participant, but there are certain withdrawal restrictions that apply to these types of contributions resembling those that apply to salary deferral contributions. For example, a plan participant may not rollover these types of contributions if distributed from the plan on account of hardship (see the FAQ related to hardship withdrawals), as well as certain other restrictions.
With this type of 401(k) plan, a plan participant may defer salary to the plan in an amount not exceeding the lower of the following: the maximum salary deferral percent defined in the plan document and listed in the plan’s SPD; the annual IRS limit on salary deferral amounts ($10,500 for 2001); or the Internal Revenue Code Section 415 limit (the lesser of 25% of pay or $35,000 in 2001). For example, suppose the plan defines the maximum salary deferral percent to be 15% of pay while an eligible participant. Suppose further that your annual pay is $40,000 and you are eligible to participate in the plan for the entire plan year. Your salary deferral limit would be $6,000 for the year in question because 15% is the lower of the three limits cited above.
There are many other nuances associated with this type of plan, too numerous to mention here. Refer to the notice posted by your employer for further details or contact your plan’s Plan Administrator.
The answer depends on whether you terminated employment prior to meeting the plan’s eligibility requirements or after you had become a plan participant, and will also depend on the employer’s adopted plan document.
Generally, if you terminated prior to satisfying the plan’s eligibility requirements and are re-hired prior to the time the eligibility requirement’s initial computation period expires (12 months beginning on the original date of hire, if a one year of service requirement applies) your prior service will count towards satisfying the plan’s eligibility requirements. If re-hired after the expiration of the plan’s initial eligibility computation period, but prior to 12 months following your termination date, you will be required to satisfy the eligibility requirements using the plan’s plan year as the eligibility computation period.
If re-hired after having met the plan’s eligibility requirements, but prior to actually becoming a plan participant (you were not employed on the plan’s next entry date after satisfying the eligibility requirements) you will become a plan participant immediately upon your re-hire date.
If re-hired after having met the plan’s eligibility requirements and actually became a plan participant (were still employed as of the plan’s next entry date) you will become a plan participant immediately upon your rehire date.
This question is a very technical one and each employee’s situation will be different depending on a number of factors. Contact your plan’s Plan Administrator for further clarification if this situation applies.
A Salary Deferral Arrangement is an arrangement whereby a plan participant can choose to receive their pay in cash or to have a portion of their pay contributed to their employer’s qualified 401(k) plan. In electing to defer a portion of your pay, Federal Taxes and certain State’s taxes on the deferred amounts (and earnings on those amounts) are deferred until such time as you actually receive a cash distribution of your account balance. However, these taxes can be further deferred by rolling over the distributed account balance to an IRA or to another qualified retirement plan in which you have become a participant, rather than taking the distribution in cash.
There are many advantages to a Salary Deferral Arrangement under a 401(k) plan. First is the deferral of taxes. Distributions from the most common qualified retirement plans are taxed as ordinary income, so deferring taxes until you retire may mean you are in a lower tax bracket than at the time you actually deferred the income. This means that the percent of the total amount you pay as tax may be lower.
Second is the compounding effect of interest on the growth of your retirement plan account. With Uncle Sam waiting to take their bite until you actually receive a cash distribution from your account balance, more of your money is going to work for you rather than to the tax coffers. This means, theoretically, a larger account balance at retirement.
Third is the dollar cost averaging effect of investing. With a steady and consistent amount being invested over time, the amount of shares you buy will depend on the price per share of your chosen investment. When the share price is low in a particular investment, your salary deferral amount buys more shares. When the share price is high, your salary deferral amount buys fewer shares. Theoretically, over time your average share price will be lower than if you would have invested a large amount several times.
An employee salary deferral is an amount that the plan participant elects to defer from their compensation to an employer sponsored 401(k) plan. Such amounts are 100% vested (owned by the participant) when contributed to the plan because essentially it is your pay to begin with and you have elected to have the employer deduct it and contribute it to the plan.
An employer matching contribution is a contribution made by the employer to an employer sponsored 401(k) plan. This contribution is based on a formula related to a participant’s employee salary deferral contribution, therefore, a participant must enter into a salary deferral arrangement to receive such a contribution. However, there may also be other requirements a participant must satisfy in order to receive such a contribution such as having worked at least 1,000 hours during the plan year. This type of contribution is typically subject to a vesting schedule.
An employer profit sharing contribution is a contribution made by the employer to an employer sponsored qualified retirement plan. Eligible participants share in this contribution based on a predetermined formula used to allocate this contribution amount. The plan need not be a 401(k) plan, but if it is a plan participant need not enter into a salary deferral arrangement to receive such a contribution. However, there may be other requirements that an employee must satisfy such as being employed on the last day of the plan year or having worked at least 1,000 hours during the plan year. This type of contribution is typically subject to a vesting schedule.
Qualified retirement plan distributions are subject to strict IRS regulations. There are four basic triggering events that give rise to a distributable event: retirement; death; total and permanent disability or termination of employment. If you have experienced any of these events you, or your beneficiaries, may be eligible to receive a distribution of your account balance. Generally, most plans 100% vest a participant’s account balance upon death, total and permanent disability or retirement. If your employment with the employer is terminated, either voluntarily or involuntarily, your vested account balance will be determined based on the plan’s vesting schedule which is based on the number of vesting years of service for which you have received credit.
Tax implications apply if you receive a cash distribution of your vested account balance and do not rollover this amount into another qualified retirement plan or an IRA. See your tax advisor or CPA for further details and read the Special Tax Notice Regarding Plan Payments available in the FORMS section of our website, which is part of the Distribution forms, prior to making your distribution election.
Please check with your plan’s Plan Administrator or your Summary Plan Description for further details. If you are eligible to receive a distribution of your account balance you may access the necessary distribution and related forms from the FORMS section of our website. You will need to obtain the Client Identification number from your Plan Administrator in order to access these items and may also need to download a free copy of Adobe Acrobat Reader software to view and print these forms. A link to the Adobe website is available in the FORMS section for your convenience.
You may join the plan once you have satisfied the plan’s eligibility requirements defined in the plan document and your Summary Plan Description. Once satisfied, you must complete a beneficiary form and an enrollment form if the plan is a 401(k) plan or if the plan allows participants to direct the investment of their account balance. Whether or not you decide to defer a percentage of your pay to the plan (if a 401(k) plan), an enrollment form should be completed so that your investment selections are on file in the event that the employer makes an employer contribution to the plan to which you are entitled to a share. A beneficiary form should also be completed so that the beneficiary of your account is established in the event it is needed.
Your plan’s Plan Administrator should have a master copy of each on file and can supply you with a copy. However, you may also access and print a copy of each of these items from the FORMS section of our website. You will need to obtain the Client Identification number from your Plan Administrator in order to access these items and may also need to download a free copy of Adobe Acrobat Reader software in order to view and print these forms. A link to the Adobe website is available in the FORMS section for your convenience.
A subset or type of Defined Contribution Plan, also know as a Cash or Deferred Arrangement (CODA). This type of plan allows participants to elect to defer a percentage of their pay to the plan. The employer may also make contributions under this type of plan normally in the form of profit sharing or matching contributions. The amount elected to be deferred from a participant’s pay will not be subject to Federal withholding taxes and many State’s taxes; however, Social Security taxes still apply.
The amount of a participant’s taxable and non-taxable wages, salary, fees or earned income as defined in the plan document and outlined in the SPD.
A type of qualified retirement plan in which a participant’s benefit is based solely on a predetermined monthly benefit to be paid at the participant’s normal retirement date. The monthly benefit is based on a formula, which may take into account a participant’s salary, service and other factors.
A type of qualified retirement plan in which a participant’s benefits are based solely on the participant’s account balance.
The payment of a participant’s vested account balance from the plan. This payment is normally restricted to very limited triggering events such as retirement, death, total and permanent disability or termination of employment.
A date specified in the plan document in which a participant has met certain qualifications for either a distribution of their account balance or other plan requirements and which is based on the participant’s age, years of service with the employer or both. The plan’s definition of normal retirement may not necessarily be the same as defined by the Social Security Administration.
The actual qualification requirements used in determining an employee’s eligibility to join the plan. Usually defined as satisfaction of both an age and service requirement, such as age 21 and 1 Year of Service, the defined requirements (if applicable) must be satisfied prior to an employee enrolling as a plan participant. The eligibility requirements are specified in the plan document and the Summary Plan Description.
The amount or percentage of a participant’s wages, salary, fees or earned income that has been elected for contribution to the plan and identified by an executed enrollment form. This amount is deducted each payroll period and is not subject to Federal Tax and certain State’s taxes but is subject to Social Security Taxes. These amounts are always 100% vested (fully owned by the plan participant).
The process of joining the plan. After completing the plan’s eligibility requirements, an employee may now enter the plan on the next plan defined entry date (e.g. 1st day of each calendar quarter) by completing an enrollment form prior to the next entry date.
The date(s) on which an employee who has satisfied the plan’s eligibility requirements may join the plan. This date/dates is/are specified in the plan document and the Summary Plan Description.
If allowed by the plan document, a Hardship withdrawal may be made from a participant’s vested account balance due to an immediate and heavy financial need of a participant (as defined by the Internal Revenue Service) and that cannot be satisfied by other available resources. Hardship withdrawals can not be repaid to the plan and have very strict circumstances under which they will be granted to the participant by the plan trustee(s). Tax implications apply as well as a one year restriction on participant deferrals from the date of the withdrawal. (See FAQ).
An amount contributed by the employer to a participant’s account based on a formula related to a participant’s salary deferral contributions. This formula may be fixed or discretionary. If discretionary, the matching contribution formula may vary from plan year to plan year. This type of employer contribution is typically subject to a vesting schedule.
A subset or type of Defined Contribution Plan. Contributions under this type of plan are made by the employer who has a fixed obligation to make such annual contributions to the plan. These contributions are usually based on a document defined percentage of each participant’s pay.
If allowed by the plan document, a participant may apply for a participant loan to be taken from their vested account balance. This amount must be repaid to the plan, which is usually required through payroll deductions on an after-tax basis. The loan payments are based on the loan’s amortization schedule (i.e. repayment schedule). Participant loans have very strict repayment guidelines and may also be restricted to limited circumstances. (See FAQ).
The employer is typically the named fiduciary or plan administrator. The duties of the plan administrator include, but are not necessarily limited to, appointing the plan’s attorney, accountant, actuary, custodian or other party needed to administer the plan; directing the trustee or custodian with respect to payments from the plan; communicating with employees regarding their participation and benefits under the plan; filing any returns and reports with the IRS, D.O.L. or other government agency; reviewing and approving any financial reports, investment reviews or other reports prepared by any party appointed by the employer; construing and resolving any question of plan interpretation, including eligibility and benefits under the plan.
Also know as a discretionary contribution, this type of contribution is made by the employer and allocated to participants pursuant to a definite predetermined formula. This type of employer contribution may or may not be made from plan year to plan year, as determined solely by the employer, with or without regards to profit. This type of contribution is typically subject to a vesting schedule.
A subset or type of Defined Contribution Plan. Contributions under this type of plan are made by the employer and allocated to participants’ accounts pursuant to a definite predetermined formula. Contributions are discretionary and may or may not be made from plan year to plan year, with or without regards to profit, as defined by the plan.
A contribution made by an employee, attributable to a distribution from active participation in a prior qualified retirement plan or a conduit/rollover IRA. The plan document and the SPD will specify whether or not rollover contributions are permitted and whether eligibility requirements for plan participation must be satisfied before a rollover contribution will be accepted. If permitted the plan document or the SPD will outline the qualification for allowing rollover contributions. This type of employee contribution is always 100% vested (fully owned by the plan participant).
Also know as an SPD, it is a written description of the plan designed to provide a participant or beneficiary with a comprehensive but understandable overview of how the plan operates.
An employee who has terminated their employment with the employer.
A term used to identify an entity, organization or firm hired by the employer to assist the actual Plan Administrator in fulfilling its duties required under the terms of the plan. Third Party Plan Administrators typically provide services which include, but are not necessarily limited to, designing, producing, amending and restating plan documents; aiding in the transition (if applicable) from the plan’s current investment platform to a newly selected investment platform; preparing employer and employee benefit statements; assisting in processing all types of distributions from the plan; preparing loan paperwork for plan participant and trustee(s) execution; testing the plan each year to gauge its compliance with all IRS non-discrimination requirements as well as plan and participant contribution limits; allocation of employer contributions and forfeitures; calculating participant vested percentages; preparing annual returns and reports required by IRS, DOL or other government agencies and other duties as required by the employer.
The individual(s) or institution appointed by the employer who is/are responsible for the administration of investments held under the plan. These responsibilities include, but are not necessarily limited to, distributions from the plan; receiving contributions under the terms of the plan and employing agents, attorneys or other professionals as the trustee(s) may deem necessary or advisable in the performance of its duties.
The ownership percentage of a participant’s account balance attributable to employer contributions (e.g. profit sharing and/or matching contributions). Typically these sources of money utilize an identical vesting schedule, but they may be different for each source.
A schedule defined in the Plan document and the SPD based on years of service with the employer. Each year of service is credited with a vesting percent, but in no event can an employee be made to wait more than 6 years before they are considered 100% vested in employer contributions. An employee is given credit for a year of service with the employer once they have satisfied a defined number of hours during the plan year, typically 1,000 or less hours. The number of years of service is then cross-referenced against the vesting schedule to determine the participant’s vested percent, or ownership percent in employer provided contributions. Please note that a plan may disregard years of service with the employer for service performed prior to the plan’s effective date and/or service performed prior to a participant turning age 18.
A plan defined number of hours of service an employee must perform for the employer during the plan year in order to be credited with a year of service. Year of service is used for different aspects of plan administration such as eligibility for plan participation, vesting calculation and eligibility for employer contribution(s). The actual number of hours may be different for each aspect of plan administration, may not be more than 1,000 hours during any given plan year, and is defined in the plan document and the SPD.