 |
|
|
Your MDB401k system comes with an IRS-approved prototype 401k plan that we work with you to customized to your 401k needs.
Things your company defines for its 401k plan include:
-- Your 401k participation eligibility requirements
-- Your 401k employer matching contribution formula, if any
-- Your 401k employer profit-sharing contribution formula, if any
-- Your 401k employer qualified nonelective contribution formula, if any
-- The vesting formula(s) to be applied to any employer matching and/or profit-sharing contributions, if any (qualified nonelective contributions are, by law, 100% vested when made)
-- Your Investment options
-- Your 401k loan policy, if allowing for 401k loans
-- Your automatic enrollment default investment and contribution rate, if using automatic enrollment
-- Whether or not your plan will be run by the safe harbor method of 401k plan administration and, if so, certain 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, complete the appropriate Order Form and mark "Unsure. Please contact..." for any items you'd like assistance with.
-- Within parameters set by law, you can have us edit your 401k plan down the road, too. You're never locked into the decisions you find suitable today. (If any edits you later have us make to your 401k plan mean recustomization 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 $300.)
|
|
|
|
As we said above, there are several things your company defines for its 401k plan:
-- Your 401k participation eligibility requirements
-- Your 401k employer matching contribution formula, if any
-- Your 401k employer profit-sharing contribution formula, if any
-- Your 401k employer qualified nonelective contribution formula, if any
-- The vesting formula(s) to be applied to any employer matching and/or profit-sharing contributions, if any (qualified nonelective contributions are, by law, 100% vested when made)
-- Your Investment options
-- Your 401k loan policy, if allowing for 401k loans
-- Your automatic enrollment default investment and contribution rate, if using automatic enrollment
-- Whether or not your plan will be run by the safe harbor method of 401k plan administration and, if so, certain employer contribution formulas
The following chart offers more information on each of these items, plus our recommendations for most small business 401k plans:
| ASPECT OF 401k PLAN |
IRS ALLOWS… |
RECOMMENDED FOR MOST MDB401k PLANS
|
| Participant eligibility: age requirement |
anything from none to 21 years of age |
21 years of age |
| Participant eligibility: length of service requirement |
anything from none to 1 year of service |
3 months of service |
| Participant eligibility: union membership |
can exclude employees whose service is governed by a collective bargaining agreement |
exclude union employees |
| Employer contributions (matching, profit-sharing and/or qualified nonelective) |
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:
no vesting earned until the person has participated in the plan for five years, then 100% vesting after five years, or
0% vested for the first 2 years,
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
OR
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, and
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" |
Mydiscountbroker self-directed discount brokerage accounts offer all types of 401k investments |
| 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) |
|
|
|
|
The entire MDB401k 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 MDB401k 401k plans:
|
ASPECT OF PLAN
|
MDB401k STANDARD |
| Plan year |
January 1 - December 31 |
| Eligibility commencement |
participation begins on the first day of the first month
after the person meets the plan's
age and length of service eligibility requirements |
| Normal retirement age |
65 |
| Early retirement age |
none |
| Hardship withdrawals |
included (IRS-mandated) |
| 401k loans |
allowed, but not mandatory (see Options chart, above) |
| Employer contributions |
allowed, but not mandatory (see Options chart, above) |
| Participant account statements |
automatically prepared by the MDB401k software EVERY MONTH. Participants also receive personal, monthly per-investment statements from the appropriate investment company |
|
|
|
|
401k compliance tests are designed to ensure 401k plans have a threshold balance, at minimum, of participation of rank-and-file employees in relation to highly-paid employees.
The IRS offers an alternative means of achieving 401k plan balance: The safe harbor method of 401k plan operation lets the plans skip their annual 401k discrimination testing so long as the sponsoring employer meets certain employer 401k contribution requirements designed to ensure broad participation in the company plan and provides 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 nonelective contributions equal to 3% of each eligible employee's compensation.
-- Nonelective 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 can not be distributed before termination of employment and that they are not eligible for financial hardship withdrawal.
Your MDB401k system includes such notification within your customized 401k plan's Summary Plan Description, a document that's updated at least annually for all eligible employees.
-- If you don't choose the safe harbor method of 401k plan administration, we encourage you to use your customized 401k plan administration software's point-and-click compliance testing every month to keep well apprised of your plan's health.
Whether you choose to run your 401k plan via the safe harbor method or 401k discrimination testing, 401k plan administration is easy with MDB401k!
|
|
|
|
A 15% deductible limit imposed by IRS regulations must be considered when designing your company's 401k. Regulations require that the sum of an individual's elective salary reductions plus any matching contributions plus any non-elective profit-sharing contributions received during the year may exceed 15% of his or her compensation so long as all plan participants, in the aggregate, do not exceed an average 15% plan-wide.
-- An individual employee's total annual 401k benefit (elective deferrals plus matching contributions plus non-elective profit-sharing contributions) can exceed 15% of compensation, and may go as high as 25% of the compensation up to $30,000.
-- This upper limit (25% up to $30,000) is called the "415 limit" and represents the maximum amount of contributions from all sources a single employee can amass in a single year within the 401k.
When considering this 15% deductible limitation, please remember that it refers to the average benefit for all employees in the plan; some employees may have contributions that exceed 15% of their compensation, and some will have contributions that are less than 15%. It is the average for the plan that counts when determining the 15% rule.
|
| | |
© 401(k) Pro, Inc. All rights reserved. 401k software and related service provided by 401(k) Pro, Inc.; Brokerage services provided by Mydiscountbroker.com, Member NASD/SIPC. |
 |
