401(k) Plans

A 401(K) is a very popular type of profit sharing plan that allows participant contributions. A 401(k) plan with a vesting schedule rewards long-term employees and can enhances employee satisfaction. Any type of entity may sponsor a 401(k) including: Corporations; Sole Proprietorships; LLCs; Partnerships and Non-Profit organizations.

One of the most advantageous features is that the annual contribution is entirely discretionary. There are 4 design options available to allocate the company profit sharing contribution:

• Pro-rata: same percent to all eligibles;
• Integrated: higher wage earners receive higher percent of pay;
• Age-based: higher wage earners/ older employees receive higher contribution
• Cross tested: groups of employees can receive different contributions.

Eligibility can range from immediate to maximum of 1 year of service and age 21. The employer may also require 1,000 hours of service. The plan must be established by the fiscal year end (12/31 for calendar year companies). Other features include Participant Loans & Vesting.

401(k) Limits	2010
Employee Contributions	$16,500
Employee Catch Up Contribution (age 50 or older)	$5,500
Employer Contribution	25% of eligible payroll
Individual Limit	$49,000 ($54,500 if 50 or older)

401(K) Profile

Betty Sanders owns a construction company that employs 120 people. She has worked hard to attract and retain an excellent staff and workers, but competition is fierce. Betty knows she needs to have an excellent employee benefits package to keep her good employees. She is very cost conscious, which has helped with her success and she wants to be careful here as well. She is willing to make a small contribution, but wants the biggest employee relations “bang for her buck”.

Design

Betty implements a 401(k) plan with a small matching contribution. This will allow her flexible contributions and the ability to help those who help themselves. A vesting schedule on the matching helps her retain employees.

Investments

For their investments, they are working with their financial advisor. The advisor recommended options and ideas for participants to achieve their goals without having to be experts in investments.

Success

The professional staff at Pension Strategies has implemented a 401(k) plan with Betty’s goals in mind. The new 401(k) plan is exactly what she needs to help attract and retain employees. Ms. Sanders feels good about the benefits she is offering to her employees.