401(k) Plans

The 401(k) Plan Challenge
For at least the last decade, 401(k) salary deferral plans have been a "hot" benefit, sought after by growing numbers of job seekers and employees. If your Company has a 401(k) plan, or if you have looked into starting one, you know the advantages well. But are you equally familiar with the pitfalls?

Gearing Up for the Challenge
From an administrative standpoint, a 401(k) plan can be quite complicated to run. Most employers hire outside specialists to help. Still, certain jobs must be done in-house. A good example is the job of tracking when employees become eligible to enroll in the plan. Most 401(k) plans require employees to complete one year of service and to be at least age 21 before they can participate. This means hire dates and birth dates must be monitored. It also means keeping track of hours, since "one year of service" is defined in the law as the 12-month period (specified in the plan) during which an employee works at least 1,000 hours.

Mistakes Happen
Obviously, complicated rules like these leave plenty of room for error. If you discover a mistake has been made with your company's 401(k) plan, you should look into correcting it. However, because the IRS has strict procedures on how corrections should be made, we recommend you seek our professional assistance before you take any action.

Got a Plan? Try Automatic Enrollment
If your business sponsors a 401(k) plan - or is considering one - and you want to give employee participation a boost, think Automatic Enrollment. Most 401(k) plans are set up so that employees fill out paperwork to enroll, choose an amount of money to contribute, and designate how that money should be divided among investment options. But, with automatic enrollment, employees begin to contribute to the plan at a fixed rate once they meet the eligibility requirements, unless an employee specifically elects not to participate. Several companies that have been using automatic enrollment - including fast-food giant McDonald's - boast participation rates as high as 95%. That's good news for you as a plan sponsor, and good news for employees who are saving more for retirement. The IRS has approved automatic enrollment with the following stipulations: You must notify eligible employees of the automatic enrollment arrangements and give them adequate time to decide not to make salary deferral contributions. And you must allow employees who choose not to participate initially to contribute in the future. A few words of caution: Some states regulate how employers take deductions from employees' paychecks, and others require an employee's written consent before making salary deferrals to a 401(k) plan. You'll want to discuss the legal issues with your attorney before adding automatic enrollment to your plan.

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