A 401(k) plan allows an employee to contribute a percentage of his compensation that is not subject to Federal or State income tax. The maximum amount for 2017 is $18,000. Employees 50 years or older can contribute an additional $6,000 as a “catch-up” contribution.
A traditional 401(k) plan is subject to a strict set of non-discrimination rules. The highly compensated employees (generally the owners and employees earning over $120,000) can only contribute on average a certain percentage above what the non-highly compensated employees can contribute. The following chart explains the test:
If the plan does not pass the test, then refunds must be made to certain highly compensated employees. In order to avoid this, an employer may declare the plan to be a Safe Harbor Plan which enables the highly compensated employees to contribute as much as they want (up to the limit) as long as the employer agrees to make a matching contribution of 100% of the first 3% the employee contributes plus 50% of the next two percent or make a non-elective contribution of 3% for all eligible employees. The matching contribution and the non-elective contribution are automatically 100% vested.
Many 401(k) plan sponsors have been charged excessive fees and have been provided poor service. This exposes plan sponsors unnecessarily to fiduciary liability for which they are personally liable. My colleagues and I have formed an association with other organizations to provide a state-of-the-art, open architecture platform that includes low cost investments, professional money managers and the following services:
– ERISA 3(16), 3(21) and 3(38) fiduciary services
– Trustee and custodial services
– Daily valuation recordkeeping services
By providing these services, we can protect plan participants from large losses and at the same time, protect CEO’s, CFO’s and other fiduciaries from liability.