 
The IRS-approved prototype
plan.
Your Advisors 401(k) system comes with an
IRS-approved prototype 401k plan that we work with you to customized to your
401k needs.
Things your company defines for its 401k plan
include:
 Your
401k participate
eligibility requirements
Your
401k employer
matching contribution formula, if any
Your
401k vesting
formula, if
any
Your Investment options
Your
401k
loan policy, if allowing for 401k loans
Your
automatic
enrollment investment and contribution standards, if using
automatic
enrollment
 We customize the prototype 401k to fit your company's
401k needs.
As we said above, there are several things your
company defines for its 401k plan:
Your
401k participate
eligibility requirements
Your
401k employer
matching contribution formula, if any
Your
401k vesting
formula, if
any
Your Investment options
Your
401k
loan policy, if allowing for 401k loans
Your
automatic
enrollment investment and contribution standards, if using
automatic
enrollment
The following chart offers more information
on each of these items, plus our recommendations for most small business
401k plans:
| ASPECT
OF PLAN |
IRS
ALLOWS... |
RECOMMENDED
for most
run-it-yourself
Advisors 401(k) plans |
| Eligibility
requirement -- age |
anything from
none to 21 years of age |
21 years of age |
| Eligibility
requirement -- length of service |
anything from
none to 1 year of service |
3 months of service |
| Eligibility
requirement -- union employees |
can exclude employees whose service is governed by a collective
bargaining agreement |
exclude union employees |
| Employer
contributions -- matching |
cannot make total contributions to any employee account over
the annually-adjusted total allowed contribution amount |
contact us for details and recommendations |
| Vesting
of employer contributions |
full, immediate vesting
OR
anything less stringent than
either:
no vesting earned until the person has participated in the plan for five
years, then 100% vesting after five years, or
0% vested for the first 2 years,
20% vested after 3 years,
40% vested after 4 years,
60% vested after 5 years,
80% vested after 6 years, and
100% vested after 7 years of participating in the plan. |
full, immediate vesting
OR
Five Year Formula:
20% vested after 1 year of participating in the plan,
40% vested after 2 years,
60% vested after 3 years,
80% vested after 4 years, and
100% vested after 5 years of participating in the plan. |
| Investment
options |
almost anything goes (stocks, bonds, annuities, company stock,
GIC insurance contracts, and more), but selection offered MUST fulfill plan
sponsor's "fiduciary responsibility" |
choose among a wide
selection of Class A, B, or C mutual fund families |
| 401k
loans |
inclusion or exclusion allowed |
not recommended in plan's first year of operation |
| Automatic
(aka, passive) enrollment |
allowed by the IRS, but the legal system has not yet had occasion
to rule on possible infringement upon employee rights |
no recommendation
(consult your legal advisor) |
 Standards we recommend
for most small business 401k plans
The entire Advisors 401(k) system is based
on years of experience that our sister company,
Pension Service
Associates, has had building and servicing quality 401k plans that
appeal to the special needs of small and medium-sized companies.
That experience (coupled with Internal Revenue
Code mandates) brought us to the following standards for all Advisors
401(k)
plans:
| ASPECT
OF PLAN |
ADVISORS 401(k) STANDARD
|
| Plan
year |
January 1 - December 31
|
| Eligibility
commencement |
participation begins on the
first day of the first month
after the person meets the plan's
age and length of service eligibility requirements
|
| Normal
retirement age |
65
|
| Early
retirement age |
none |
| Hardship
withdrawals |
included (IRS-mandated) |
| 401k
loans |
allowed, but not mandatory (see Options chart, above) |
| Employer
matching contributions |
allowed, but not mandatory (see Options chart, above) |
| Investments |
choose among a wide
selection of SEC-regulated Class A, B, or C mutual fund
families |
| Participant
account statements |
automatically prepared by the Advisors 401(k) software EVERY
MONTH;
participants also receive personal, monthly per-investment statements from
the mutual fund company or discount brokerage holding their
investments |
 Safe
harbor option
There is a "safe harbor" option that allows
an employer to omit ADP and related compliance testing. The reasoning behind this
safe harbor is that if a plan provides certain minimum benefits to ensure broad
participation, the company ought not to have to prove yearly that the plan is
nondiscriminatory.
To
qualify for the safe harbor option, a 401k plan sponsor must satisfy
three criteria:
Employer must make "safe harbor" (i.e. nonelective contributions)
to the accounts of all non-highly compensated employees in an amount equal to 3% of
their compensation. Each non-highly compensated employee is entitled to receive
this contribution, whether or not the employee elects to actively participate in the
401k.
If desired, nonelective contributions need not be made on behalf of the highly
compensated employees
The safe harbor contributions must be 100% fully
vested, regardless of the length of service of the employee. The safe harbor
contributions may not be distributed before termination of employment, nor are
they eligible for financial hardship withdrawal.
Employer must provide annual information to all
employees to make sure they understand the safe harbor 401k plan and its benefits
If the 401k plan has
employer matching provisions, matching must be at least as generous as
the "safe harbor matching formula." To qualify under safe
harbor matching, two requirements must be met:
The employer is required to provide each non-highly
compensated employee who participates in the 401k with a dollar-for-dollar
match on his or her salary deferrals up to 3 percent of compensation, and a 50
cents-on-the-dollar match on salary deferrals between 3 percent and 5 percent
of compensation. As an alternative approach, a matching safe harbor contribution
can be achieved by making an "enhanced match", which is dollar-for-dollar up to
the first 4 percent of compensation.
The percentage of matching contributions for any
highly-compensated employee at any percentage of salary deferral cannot exceed
the percentage of matching contributions provided to non-highly compensated
employees.
15% Rule --
401(k)deductible limit and plan design
A 15% deductible limit imposed by IRS regulations must
be considered when designing your company's 401k. Regulations require that the
sum of an individual's elective salary reductions plus any matching contributions
plus any non-elective profit-sharing contributions received during the year may
exceed 15% of his or her compensation so long as all plan participants, in the
aggregate, do not exceed an average 15% plan-wide.
An individual employee's total annual 401k benefit
(elective deferrals plus matching contributions plus non-elective profit-sharing
contributions) can exceed 15% of compensation, and may go as high as 25% of the
compensation up to $30,000. This upper limit (25% up to $30,000) is called the "415 limit"
and represents the maximum amount of contributions from all sources a single employee
can amass in a single year within the 401k.
When considering this 15% deductible limitation,
please remember that it refers to the average benefit for all employees in the plan;
some employees may have contributions that exceed 15% of their compensation, and some
will have contributions that are less than 15%---it is the average for the plan that
counts when determining the 15% rule.
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