What is a 401k plan?
A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on post and/or pre-tax basis. Employers may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit sharing feature to the plan. Earnings accrue on a tax-deferred basis.
When designing a 401K plan, what should be taken into consideration?
Proper design is the first step toward a successful 401(k) program. A consultant can help determine 401(k) plan options and features that should be included. Selection of a document and 401(k) service providers can then be accomplished.
The most important design element of a 401(k) program usually is the determination of the employer's matching contribution, since it can increase employee participation in the 401(k) plan. Increased employee participation is desirable for both employers and employees. The appropriate matching contribution can decrease employer costs by lowering the employer contribution that may be required to meet certain "nondiscrimination" requirements. Conducting a survey to ascertain employee contributions will help determine the most advantageous 401(k) matching contribution.
In addition to matching contributions, other important 401(k) design considerations are:
1. Fees. Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.
2. Eligibility. Should the employer allow employees to enter the 401(k) plan immediately upon hire or should they be required to wait up to one year? The answer will depend on several factors, including the use of the 401(k) plan as a tool to attract valuable employees, employee turnover and the affect the eligibility period has on passing the nondiscrimination tests.
3. Additional Employer Contributions. A profit sharing feature can be added to allow for additional employer 401(k) contributions. The profit sharing formula requires separate design; it can be, for example, "non-integrated", "integrated" or "age-weighted", depending upon how the employer desires to allocate such contributions.
4. Vesting. The employer may elect to have 401(k) participants become fully vested immediately in profit sharing and/or matching contributions, or a vesting schedule may be selected.
5. Choice of Investments. The employer must decide whether 401(k) plan participants should have "self-directed" accounts or pooled investments directed by the employer. The fiduciary concerns of the employer and the investment wishes of the participants are key factors when making this decision.
6. Availability of Loans and Hardship Withdrawals. Participants may have access to their accounts, through loans or withdrawals, prior to termination of employment. Factors that must be considered when deciding whether to allow this access include the administrative difficulties with making these options available and the financial needs of the plan participants.
After the design of the 401(k) has been completed, the type of document needed can be selected. Prototype plans offered by 401(k) fund service providers and some consulting organizations limit the design more than individually drafted documents. Although 401(k) prototypes are less expensive and may simplify 401(k) administration, they do not allow the alternatives available in an individually drafted 401(k) plan. A consultant can help select the type of document needed.
What are 401K rollovers?
Moving 401K and other retirement plans from prior employers is a common ongoing occurrence.
Once individuals become aware of the advantages associated with enhanced performance, better and more complete investment choices, unrestricted and cost free exchanges between funds and perhaps even a death benefit to heirs the decision to move frequently makes good economic sense.
Generally, individuals currently employed cannot move their 401K plan participating to another carrier or an IRA; however, some major companies do permit active 401K participants to roll to IRAs. Usually, if an individual is over 59 1/2, a partial or full rollover may take place. This is called an "in service non-hardship withdrawal."
Generally, when one leaves the employ of a company, one has the option to roll their 401K pension plans into the new company's plans, if available, or into a personal IRA or a Rollover IRA.
Frequently, the choice is made to roll into an IRA because of the flexibility and vast array of individual choices available.
Once in an IRA, the participant is therefore not relegated to the investment choices offered by the company or not-for-profit organization, nor, is the participant subject to any potential future restrictions imposed by the new employer, if any.
Once in an IRA, the participant is permitted to move the plan for whatever reason to other investments within his/her IRA as desired.
Retirement plans can be readily rolled from mutual funds to variable annuities or from variable annuities to mutual funds. Or from one mutual fund complex to another fund, or from one annuity to another. Sales charges might or might not apply.
There are a number of considerations regarding these rollovers and proper selection of the proper mutual fund or variable annuity funding family is of importance.
A professional at K.W. Brown Investments can help you roll your old 401K, (or current 401K if eligible) into corresponding accounts for retirement planning. Once the plan is in place,you may have our affiliate 21st Century Advisors' representative manage the assets for you. Call our offices today at 800-881-4246 for a complimentary review of your current plan or to rollover your 401K.
What participant services can K.W. Brown Investments offer?
1.) Participant services.
2.) Education programs.
3.) Simplified, color-coded educational materials talk directly to English and Spanish-speaking employees in layman’s terms and are complemented by an online education program.
4.) Internet and telephone service.
5.) Ongoing participant services include Internet and 800# access to obtain balances and conduct simple transactions.
6.) Enrollment support.
7.) An award-winning enrollment kit is enhanced by support from dedicated Enrollment Specialists, providing employees with motivation to enroll.
8.) Flexible enrollment options i:enrollments allows participants to select investment options and enroll 7/24 via the Internet.
9.) The Semimonthly Newsletter describing the market and the economy.
10.) Participants receive newsletters filled with useful financial planning information with their quarterly statements. Current and past issues are also available online.
11.) Statements: User-friendly, quarterly statements can be mailed directly to participants’ homes. In addition, a participant statement user guide is provided to participants automatically with their first quarterly statement.
12.) Online advice: Although it is not automatically available, a plan sponsor may choose to offer online advice for their participants provided they have this service set up in advance with mPower – an independent, online investment advisor that provides objective personalized investment advice, timely investment information and interactive education.
Services are provided through a separate service agreement.
What plan sponsor services can K.W. Brown Investments offer?
1.) Local team: enrollers, case managers, and TPAs.
Working exclusively with Third Party Administrators (TPAs) throughout the country ensures compliance expertise on qualified plan issues. A K.W. Brown investments representative, combined with enrollment and ongoing client management specialists, ensures superior client service at every level. 2.) Ongoing education materials: Participant information includes a complete software-based ongoing education program.
3.) Fiduciary handbook: Easy-to-use fiduciary tools are designed to help clients understand compliance requirements.
4.) Quarterly Investment Guide: It’s important for plan sponsors to monitor the investment choices they’ve made for their plans. Quarterly, we provide clients – and their financial consultants – with an update on performance and annual investment charges compared to benchmarks for the investment options available under our group annuity contract. The Quarterly Investment Guide also provides condensed versions of individual fund sheets and information about asset managers.
5.) Audit Package: A complete plan audit package simplifies plan administration by bundling filing information into one easy-to-use kit.
6.) Enrollment options and materials: An online enrollment option, employee enrollment meetings, an enrollment video and award-winning communication materials encourage employees to enroll and contribute to their qualified retirement plan.
Find out more: Call (561) 393-6900 / 1-800-881-GAIN
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Call K.W. Brown Today at (561) 393-6900 or 1-800-881-GAIN
K.W. Brown Investments * 401 W. Linton Blvd., Suite 202 * Delray Beach, Florida 33444
Phone (561) 393-6900 * Fax (561) 347-0145 * Wats 1-800-881-GAIN
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K.W. Brown investments offers a unique and valuable feature for 401K managed funds for businesses. We offer money management in the 401K either by our own expert team, self - directed management by the participants, or management through the 401K participants' own financial planners.
If you have not reviewed your plan for some time and you would like to see how it can be optimized under the current tax laws, or if you would like to see how a new managed retirement plan can benefit your business and your employees, please call or email us for a personal consultation.
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