Century Benefits Consulting, Inc. has the knowledge and expertise to set your employees up with the benefits that can last them a lifetime. Let’s face it, as working adults, most of us are not “working for the weekend” anymore—we’re working for retirement. Read the FAQ below to learn how your company can provide you and your employees with an excellent retirement plan.
What is a 401(k) plan?
A 401(k) plan allows employees to put part of their pay into a special investment account. Employees deposit this money on a pre-tax basis so Uncle Sam doesn’t get his piece of the apple pie till later. Those funds stay in that account where they can increase over time, and they are not taxed until they are withdrawn.
Are there limits on how much employees can contribute to their 401(k) plans?
As far as we’ve been able to tell, there’s a limit for everything, and 401(k) plans are no exception. In 2005, employees’ pre-tax contributions are limited to $14,000 for employees up to age 50. If an employee is over 50, she or he can make an additional $4,000 in catch-up contributions. These amounts increase annually.
How many employees do I need to set up a 401(k) plan?
We work with employers of many sizes, and can even set up a special kind of 401(k) plan for companies that only have one employee. This special plan is called a Solo(k) plan. Click here to learn more.
How is 401(k) money invested?
You may put your money almost anywhere. Some of the investment options are: institutional or mutual funds investing in the money market, bond market, or stock market; annuities; guaranteed investment contracts; company stock; and self-directed brokerage accounts.
How can we figure out which investments are best?
This can be a tough call, and that’s one of the ways Century Benefits Consulting, Inc. is here for your company. We can assist you in finding the right investment company for your 401(k) plan as part of our tailor-made service.
What if employees want to take their money out of the plan before they retire?
Since 401(k) money is earmarked for spending in the golden years, there is a penalty if employees withdraw their funds before hitting 59 ? (in some cases, the age is 55). Money can be withdrawn penalty-free under special circumstances like disability or death, or if a plan includes provisions for loans or hardship withdrawals.
Who is eligible to participate in my company’s 401(k) plan?
It depends on the plan your company decides on. All employees may be eligible to join regardless of their age or length of service, however, as the employer, you can set specific age and service requirements if you like. You can also choose to exclude certain groups of employees, as well, such as union or non-resident alien employees. You cannot require that employees be more than 21, or set your length of service requirement at more than one year.
What tests does my plan need to pass in order to qualify under the IRS code?
There are a few tests your plan must pass.
- The first is the discrimination testing that requires that the average deferrals of the high rollers in the company (those who earned more than $95,000 in 2004 or who own upwards of 5% of the company) do not exceed by more than a certain percentage the deferrals of those employees who were not as highly compensated.
- There is also a coverage test that requires that at least 70% of the non-highly compensated employees benefit under the plan.
- Next, there’s a top heavy test that states that if more than 60% of the plan’s assets are going to key employees (officers, owners, you know the ones), the non key employees are required to receive a minimum contribution from your company.
It all sounds pretty heavy, but if your company is willing to make a minimum contribution on behalf of the non-highly compensated employees, you can eliminate discrimination tests and the top heavy test altogether.
Phew! Won’t you be glad to be fishing and knitting and planning your next trip in the RV instead of thinking of all of this?