General Overview
A flexible qualified retirement vehicle based on employee deferrals from pre-tax income and optional employer contributions. It is the most flexible in design, but highest cost to administer. Primarily recommended for companies with 25 or more employees.
Eligibility
Any type of public or private company, generally any employee with more than one year of service.
Key Advantages
Features such as vesting schedules and loans
Most employer flexibility
Primarily funded by the employee
Availability of loan feature
Key Disadvantages
Subject to top-heavy testing
High administrative costs
Potential employer liability for investments
Investment selection generally limited
Funding Responsibility
Primarily employee salary reduction contributions and optional employer contributions
Annual Contribution Per Participant
Employee: Depending on plan design, could be up to 20% of compensation, up to a maximum of $10,000 in 1998 and 1999.
Employer/employee combined: Up to 25% of compensation, up to a maximum of $30,000
Access to Assets
Cannot take withdrawals from plan until a "trigger" event occurs. May offer loan provisions and allow withdrawals in certain hardship situations. (Hardship withdrawals may be subject to a possible 10% penalty if participant is under age 59 1/2.)
Vesting of Contributions
Employee contribution vested immediately; different vesting schedules available for employer contributions
Administrative Responsibilities
Form 5500 and special IRS testing to ensure plan does not discriminate in favor of highly compensated employees
Administrative Costs and Fees
Highest of four plans. Typically $500 per year and up
All limits and features are for the 1999 plan year.
© Copyright 2000 Raymond S. Kulzick. All rights reserved. 000218.
This publication provides business, financial planning, and/or tax information to our clients. All material is for general information only and should not be acted upon without seeking appropriate professional assistance.