Salary Reduction 401(k) Plan

From pension plans to stock bonus plans, these days there are numerous retirement plan options available to employers. However, in recent years, one particular retirement plan choice, 401(k) salary deferral plan, has begun to garner more attention, and it's easy to see why. A 401(k) salary deferral plan is relatively simple to implement and maintain and can prove to be very cost effective which gives it a clear advantage in today's current corporate environment.

The Facts. With a 401(k) salary deferral plan an employee chooses to contribute a certain percentage of their salary each pay period to the tax-qualified retirement plan offered by their employer. The contributions are then placed into a plan account for the employee's benefit where it is invested until the employee withdraws the money, usually upon his retirement.

The maximum amount of an employee's annual salary deferral is limited by tax law, but some plans go further and impose even lower contribution maximums. In many 401(k) plans, the employer matches part or all of the employee's contributions, but that is not a necessity and is entirely your choice.

Employee Advantages:

• Setting up a company sponsored 401(k) plan provides your employees with several advantages:
  
• Federal income tax is not immediately payable on the amount of the employee's contributions.
  
• The entire amount (including plan contributions and earnings on those contributions) are exempt from taxes until they are withdrawn from the plan.
  
• Some plan payouts are eligible for favorable tax treatment.
  
• Some plans allow for your employees to borrow from their own accounts while still working, but certain tax law requirements must be met.
  
• For plans that offer matching contributions, your employees receive a significant, immediate return on their investment.
  
• Most 401(k) plans allow for employees to make their own investment choices from a variety of investment selections.
  
• Employees who are 50 years old or older are allowed to make additional contributions to the plan in order to "catch up".

Employeer Advantages :

• A 401(k) plan offer many advantages to employers as well.
  
• The cost of setting up and maintaining a 401(k) retirement plan is negligible.
  
• Since you choose the level of matching contributions, you are also able to limit the annual cost of plan contributions.
  
• Assuming your plan meets all tax law requirements your business will be able to deduct for income-tax purposes you employee's 401(k) salary tax deferrals as well as any matching contributions that you have made.
  
• 401(k) retirement plans often cost less to maintain than other similar options.
  
• 401(k) plans reportedly encourage more employee participation than other retirement plan options.
  
• 401(k) plans can improve recruiting and employee retention efforts.
  
• Many small employers are eligible for a tax credit for part of the expense of setting up and maintaining a new 401 (k) retirement plan.

401(k) Plan Requirements. Like all tax-qualified retirement plans, 401(k) plans must meet certain tax law requirements for employees and employers to qualify for tax benefits. In addition there is as separate set of pension law requirement that must be met. Generally, the tax law requirements for a 401(k) retirement plan are the same as those for any other tax-qualified retirement plan. In other words, your 401(k) plan must satisfy the tax and pension law's requirements for participation, disclosure, and reporting rules, among others.

Additionally, there are other rules unique to 401(k) plans. For instance, all employee's 401(k) salary deferrals must be completely 100% non-forfeitable. So, while an employer's contributions are allowed to become vested over time, employee contributions are required to become vested immediately. In addition, all 401(k) plans are required to meet special nondiscrimination rules.  

401(k) Plan Services. Even after you decide to offer a 401(k) retirement plan to your employees it can be an intimidating proposition. How do you set it up? And once it's been established, how will you maintain and administer it? There are a lot of things you need to consider.

Or maybe you already have a 401(k) retirement plan set up, and you've been unhappy with its past performance or the participation you've been seeing from your employees. The success or failure of any retirement plan depends upon the execution and how the details are handled. That's why it's more important than ever that you speak with one of Lane Gorman Trubitt, L.L.P.'s retirement planning professionals.

No matter what your situation, LGT has the experience and expertise to help you establish a successful retirement plan and encourage strong employee participation. Regardless of your company's size, larger or small; local or global, LGT can help you find the plan that's ideally suited for you and your company's unique situation.

We can provide you with up to date, IRS-approved 401(k) plan documentation to help streamline the set up process and ensure you are in compliance with all applicable tax law. We will also guide you through the entire process from beginning to end, explain the plan benefits to your employees, and even help with the enrollment process. In addition, we can provide you with the various investment related services that all 401(k) plans require.  

Additional 401(k) Plan Services:

• Holding your 401(k) plan assets and investing them according to the investment program we've established for you.
• Collecting all plan investment income and making all benefit plan payments.
• Maintaining all records regarding plan transactions.
• Provide you and your company with management reports.
• Maintaining all records regarding your employee's plan accounts.
• Completing government reports and making all required disclosures to your plan participants.
• Provide periodic account statements to your participating employees.
• Ensure that your company's plan complies with all applicable tax and pension law requirements.

LGT's retirement planning professionals can assist you with all aspects of your 401(k) plan. Contact us TODAY so that we can begin helping your employees prepare for their future!