tailieunhanh - Lecture Employee benefits and retirement planning - Chapter 20: Section 401(k) plan

This chapter discusses Section 401(k) or cash or deferred arrangement (CODA) plans. Brief mention is made of SIMPLE and safe harbor 401(k) plans, but the primary focus is on traditional plans. After an initial identification section, the chapter moves into a discussion of when use of such a plan is indicated, along with potential advantages and disadvantages. | What is it? qualified profit sharing or stock bonus plan that gives plan participants option to put money in plan – tax deferred receive same amount in cash – taxable often called “cash or deferred arrangement” or CODA Copyright 2009, The National Underwriter Company When is it indicated? employer wants qualified plan but can only afford minimal costs employer willing to meet minimal funding requirement for non-HCEs and wants to maximize contributions for HCEs without annual ADP tests Copyright 2009, The National Underwriter Company HCE - highly compensated employee ADP - Annual Deferral Percentage When is it indicated? employee group would like choice regarding saving level young willing to accept risk employer wants ‘savings type’ plan to supplement defined benefit plan employer is private tax-paying or tax exempt organization Copyright 2009, The National Underwriter Company Advantages tax-deferred savings for employees gives employees some choice in amount to save employer may contribute and deduct up to 25% of payroll for covered employees in addition to elective deferrals can fund via employee salary reductions Copyright 2009, The National Underwriter Company Advantages some plan distributions may be eligible for special 10 year averaging on lump-sum distributions in-service withdrawals for certain “hardships” may be permitted Copyright 2009, The National Underwriter Company Disadvantages account balance at retirement may be inadequate annual employee salary reduction limited to $16,500 (2009); over-50 also given ‘catch-up’ provisions of $5,500 (2009) costly and complex to administer employees bear investment risk Copyright 2009, The National Underwriter Company Design Features: Salary Reductions can use salary reduction OR give employees “bonus” that they can receive in cash or contribute to plan can use automatic enrollment employees MUST elect salary reduction BEFORE salary earned usually complete election form before end of each . | What is it? qualified profit sharing or stock bonus plan that gives plan participants option to put money in plan – tax deferred receive same amount in cash – taxable often called “cash or deferred arrangement” or CODA Copyright 2009, The National Underwriter Company When is it indicated? employer wants qualified plan but can only afford minimal costs employer willing to meet minimal funding requirement for non-HCEs and wants to maximize contributions for HCEs without annual ADP tests Copyright 2009, The National Underwriter Company HCE - highly compensated employee ADP - Annual Deferral Percentage When is it indicated? employee group would like choice regarding saving level young willing to accept risk employer wants ‘savings type’ plan to supplement defined benefit plan employer is private tax-paying or tax exempt organization Copyright 2009, The National Underwriter Company Advantages tax-deferred savings for employees gives employees some choice in amount to save .