401K Plans

A 401(k) Plan is a defined contribution plan that is a cash or deferred arrangement. Employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) plan. Sometimes the employer may match these contributions. There is a dollar limit on the amount an employee may elect to defer each year. An employer must advise employees of any limits that may apply. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments. Employer contributions can be made subject to a vesting schedule of up to 5 years. The 401k plan is subject to fiscal year-end testing; ADP, Top Heavy, 415 and government reporting- in order to limit non-discrimination between highly compensated employees (HCE’s) and non-highly paid employees (NCE’s)