Our firm can help navigate the complexities of the RFP process in the 401k arena. Our flagship client is the Association of Washington Business (AWB) in Olympia, of which Crane is a member. Our firm provides a unique 6 step process to providing a retirement plan solution for your company.
Stage 1: The Retirement Plan Evaluator: Our easy-to-use tool provides you with an evaluation of your company’s retirement plan objectives and concerns and an analysis of other plan solutions. We’ll also discuss and review funding strategies for fee administration.
Stage 2: The Retirement Plan Optimizer: We conduct a feasibility study to help maximize the tax benefits of your retirement program for both your company and your employees.
Stage 3: The Fiduciary Shield: Meeting your fiduciary responsibilities can be a complex process. We help control risk by developing a formal investment policy statement and establishing clear criteria for selecting and monitoring investment managers.
Stage 4: The RFP Manager: We’re on your team. We’ll sit on your side of the negotiating table to walk you through the RFP process, manage the flow of information, analyze and review proposal and guide you in making an informed and knowledgeable decision.
Stage 5: The Edu-tainment Experience: We manage every step of the transition form your current retirement program to your new program. We enroll your employees and educate them on the benefits of their new program. We’ll ensure their satisfaction through quarterly, semi-annual and annual education and financial planning seminars.
Stage 6: The Wealthcare Monitor: We’ll manage the health and welfare of your retirement program over its lifetime, advising you on regulatory changes, program enhancements and investment due diligence on a quarterly or semi-annual basis.
Our state-of-the-art processes will provide greater employee satisfaction and participation, while reducing plan anxiety by the sponsors. We are an independent advisory firm that provides business solutions in an unbiased manner. We look forward to assisting you in the RFP process for your 401k plan.
Monday, December 31, 2007
Wednesday, September 12, 2007
Glossary of 401(k) and Related terms
The Intelligent 401k Advisor thought it would be appropriate to post a glossary of 401k and related terms...a starting point for beginners and a refresher for the experts.
401(k) Plan A defined contribution plan that permits employees to have a portion of their salary deducted from their paycheck and contributed to an account. Federal (and sometimes state) taxes on the employee contributions and investment earnings are deferred until the participant receives a distribution from the plan (typically at retirement). Employers may also make contributions to a participant's account.
403(b) Plan See Tax Sheltered Annuity (TSA).
Actual Deferral Percentage (ADP) An anti-discrimination test that compares the amount deferred by highly compensated employees to the deferrals of non-highly compensated employees.
Allocation The employer's contribution to a defined contribution plan.
Alternate Payee A person other than a plan participant (such as a spouse, former spouse, child, etc.) who, under a domestic relations order, has a right to receive all or some of a participant's pension benefits.
Annual Audit An independent audit required by federal law for all plans with more than 100 participants. It is also common to refer to a DOL or IRS examination of a plan as a plan audit.
Annual Report A document filed annually (Form 5500) with the IRS that reports pension plan information for a particular year, including such items as participation, funding, and administration.
Annuity A contract providing retirement income at regular intervals. See also Qualified Joint and Survivor Annuity
Automatic Deferral Default Percentage The percentage of pay that is deferred when an employee is enrolled in a plan through its automatic enrollment feature. The typical automatic deferral default percentage is 3% of pay. Participants can generally choose to defer an amount other than the default percentage.
Automatic Enrollment The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan design specifies how these automatic deferrals will be invested. Employees who do not want to make contributions to the plan must actively file a request to be excluded from the plan. Participants can generally change the amount of pay that is deferred and how it is invested.
Beneficiary A person, persons or trust designated to receive the plan benefits of a party participant in the event of the participant's death.
Cafeteria Plan A benefit plan offering a choice from a "menu" of cash or two or more benefits.
Cash-Out The distribution of assets from a qualified plan to a participant prior to retirement, or age 59 1/2 typically occurring when a participant has a balance under $1,000 and leaves a company without requesting to have their assets rolled over into an IRA or into a new employer's plan. Cash-outs are subject to federal withholding tax, and are subject to the 10% early withdrawal penalty if not rolled over.
Cash or Deferred Arrangement (CODA) A type of profit sharing or stock bonus plan in which employees may defer current compensation on a pre-tax basis.
Cash or Deferred Election A participant request to defer compensation, on a pre-tax basis to a CODA plan.
Cash Profit Sharing Plan A type of profit sharing plan in which the company makes the contributions directly to employees in cash or stock. (This type of profit sharing plan is taxable and is not considered a qualified retirement plan.)
Common Control Business are under common control when one entity owns at least 80% of the stock, profit, or capital interest in other organization, or when the same five or fewer people own a controlling interest in each entity.
Conversion The process of changing from one service provider to another.
Deferred Profit Sharing Plan A type of qualified retirement plan in which the company makes contributions to individual participant accounts.
Defined Benefit Plan A retirement plan in which the sponsoring company provides a certain benefit to participants based on a pre-determined formula.
Defined Contribution Plan An employer-sponsored plan in which contributions are made to individual participant accounts, and the final benefit consists solely of assets (including investment returns) that have accumulated in these individual accounts. Depending on the type of defined contribution plan, contributions may be made either by the company, the participant, or both.
Department of Labor (DOL) The U.S. Department of Labor (DOL) deals with issues related to the American workforce--including topics concerning pension and benefit plans. Through its branch agency the EBSA, the DOL is responsible for administering the provisions of Title I of ERISA.
Determination Letter Document issued by the IRS formally recognizing that the plan meets the qualifications for tax-advantaged treatment.
Discrimination Testing Numerical measurements used to determine if tax qualified retirement plans are in compliance with several regulations. Typically, the process of determining whether the plan is in compliance is collectively called discrimination testing.
Disclosure Certain types of information plan sponsors must provide plan participants to access certain types of information, including the summary plan descriptions, summary of material modifications, and summary annual reports.
Distribution Any payout made from a retirement plan. See also Lump Sum Distribution and Annuity.
Early Withdrawal Penalty A 10% penalty tax for withdrawal of assets from a qualified retirement plan prior to age 59 1/2, death, disability, or retirement. This 10% penalty tax is in addition to regular federal and (if applicable) state tax.
Eligibility Conditions that must be met in order to participate in a plan, such as age or service requirements.
Eligible Employees Employees who meet the requirements for participation in an employer-sponsored plan.
Employee Benefits Security Administration (EBSA) An agency of the Department of Labor responsible for protecting the integrity of retirement plans, health plans and other employee benefits.
ERISA A federal law that requires plan sponsors to design and administer their plans in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). Among its statutes, ERISA calls for proper plan reporting and disclosure to participants.
ERISA Rights Statement A statement required by ERISA that explains participant and beneficiary rights and must be included within a summary plan description (SDP).
ESOP (employee stock ownership plan) A qualified defined contribution plan in which plan assets are invested primarily or exclusively in the securities of the sponsoring employer.
Excess Aggregate Contributions After-tax participant contributions or matching employer contributions that cause a plan to fail the 401(m) actual contribution percentage (ACP) non-discrimination test.
Excess Benefit Plan A plan, or part of a plan, maintained to provide benefits that exceed IRS Code 415 limits on contributions and benefits.
Excess Contributions Pre-tax participant contributions that cause a plan to fail the 401(k) actual deferral percentage (ADP) non-discrimination test.
Expense Ratio The percentage of a fund's assets that are used to pay its annual expenses.
Facts and Circumstances Test The test determining whether financial need exists for a 401(k) hardship withdrawal.
Fidelity Bond A bond that protects participants in the event a fiduciary or other responsible person steals or mishandles plan assets.
Fiduciary A person with the authority to make decisions regarding a plan's assets or important administrative matters. Fiduciaries are required under ERISA to make decisions based solely on the best interests of plan participants.
Fiduciary Insurance Insurance that protects plan fiduciaries in the event that they are found liable for a breach of fiduciary responsibility.
Forfeiture Plan assets surrendered by participants upon termination of employment before being fully vested in the plan. Forfeitures may be distributed to the other participants in the plan or sued to offset employer contribution.
Form 1099R A form sent to the recipient of a plan distribution and filed with the IRS listing the amount of the distribution.
Form 5500 A form which all qualified retirement plans (excluding SEPs and SIMPLE IRAs) must file annually with the IRS.
Guaranteed Investment Contracts (GICs) Accounts with an insurance company at a fixed rate of interest.
Hardship or In-Service Distribution A participant's withdrawal of their plan contributions prior to retirement. Eligibility may be conditioned on the presence of financial hardship. These distributions are taxable as early distributions and are subject to a 10% penalty tax if the participant is under age 59 1/2.
Highly Compensated Employees (HCEs) An HCE, according to the Small Business Job Protection Act of 1996, is an employee who received more than $100,000 in compensation (indexed annually) during the last plan year OR is a 5% owner in the company.
Individual Retirement Account (IRA) Personal retirement vehicles that allows a person to make annual tax deductible or non-deductible contributions. These accounts must meet IRS Code 408 requirements, but are created and funded at the discretion of the individual. They are not employer sponsored plans.
Internal Revenue Service (IRS) The branch of the U.S. Treasury Department is responsible for administering the requirements of qualified pension plans and other retirement vehicles. The IRS also worked with the DOL and the PWBC to develop Form 5500, and is responsible for monitoring the data submitted annually on Form 5500 reports.
Keogh Plan A qualified defined contribution plan permitting self-employed individuals to contribute a portion of their earnings pre-tax to an individual account.
KSOP A plan arrangement that includes both 401(k) contributions and an ESOP.
Leased Employee An individual contracted to a leasing organization that provides services for the company.
Lump-Sum Distribution The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death or disability.
Matching Contribution A contribution made by the company to the account of the participant in ratio to contributions made by the participant.
Material Modification A change in the terms of the plan that may affect plan participants, or other significant changes in a summary plan document (SDP).
Median Market Cap An indicator of the size of companies in which a fund invests.
Money Market Fund A mutual fund seeking to generate income for participants through investments in short-term securities.
Money-Purchase Plan A type of defined contribution plan in which the employer's contributions are determined by a specific formula, usually as a percentage of pay. Contributions are not dependent on company profits.
Multiemployer Plan A pension plan receiving contributions from more than one employer contributes, and which usually is maintained according to collective bargaining agreements.
Mutual Fund A single account designed to create a diverse portfolio that may help to reduce the risk of owning individual investments.
Named Fiduciary One or more named individuals who have authority to control and manage the operations of the plan.
Nonelective Contribution An employer contribution that cannot be withdrawn or paid to the employee in cash. This contribution is neither a matching contribution or an elective contribution.
Non-Highly Compensated Employees (NHCEs) Employees who are not highly compensated. See highly compensated employees.
Non-Qualified Deferred Compensation Plan A plan subject to tax, in which the assets of certain employees (usually Highly Compensated Employees) are deferred. These funds may be reached by an employer's creditors.
Participant Directed Accounts Investment options offered to participants that allow them to choose their own investment mix.
Party-In-Interest Any individual or group having direct interest in the plan including: the employer; the directors, officers, employees or owners of the employer; any employee organization whose members are plan participants; plan fiduciaries; and plan service providers.
Pension Benefit Guaranty Corporation (PBGC) A federal agency established by Title IV of ERISA for the insurance of defined benefit pension plans. The PBGC provides payment of limited pension benefits if a plan terminates and is unable to cover all required benefits.
Plan Administrator The individual, group or corporation named in the plan document as responsible for day to day operations. The plan sponsor is generally the plan administer if no other entity is named.
Plan Loan Loan from a participant's accumulated plan assets, not to exceed 50% of the balance or $50,000, whichever is less. Loans are an optional plan feature.
Plan Sponsor The entity responsible for establishing and maintaining the plan.
Plan Year The calendar, policy or fiscal year for which plan records are maintained.
Portability This occurs when, upon termination of employment, an employee transfers retirement funds from one employer's plan to another without penalty.
Price/Book Ratio The share price of a stock divided by its net worth, or book value, per share.
Price/Earnings Ratio The ratio of a stock's current price to its earnings per share over the past year. The P/E ratio of a fund is the weighted average of the P/E ratios of the stocks it holds.
Prohibited Transaction Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. These include transactions with a party-in-interest, including, sale, exchange, lease, or loan of plan securities or other properties. Any treatment of plan assets by the fiduciary that is not consistent with the best interests of the plan participants is a prohibited transaction
Profit Sharing Plan A company-sponsored plan funded only by company contributions. Company contributions may be determined by a fixed formula related to the employer's profits, or may be at the discretion of the board of directors.
Qualified Domestic Relations Order (QDRO) A judgment, decree or order that creates or recognizes an alternate payee's (such as former spouse, child, etc.) right to receive all or a portion of a participant's retirement plan benefits.
Qualified Joint and Survivor Annuity (QJSA) An annuity with payments continuing to the surviving spouse after the participant's death, equal to at least 50% of the participant's benefit.
Qualified Plan Any plan that qualifies for favorable tax treatment by meeting the requirements of section 401(a) of the Internal Revenue Code and by following applicable regulations. Qualified plans include 401(k) and deferred profit sharing plans.
Rollover The action of moving plan assets from one qualified plan to another or to an IRA within sixty days of distributions, while retaining the tax benefits of a qualified plan.
Roth 401(k) A 401(k) feature that allows employees to make elective contributions on an after-tax basis. Qualified distributions from these plans, including both the Roth contributions and their associated earnings, are distributed tax-free.
Safe Harbor Rules Provisions that exempt certain individuals or kinds of companies from one or more regulations.
Savings Incentive Match Plan for Employees See SIMPLE Plan.
Schedule SSA A form that must be filed by all plans subject to ERISA Section 203 minimum vesting requirements. The schedule, which is attached to Form 5500, provides data on participants who separated from service with a vested benefit but were not paid their benefits.
Service Provider A company that provides any type of service to the plan, including managing assets, recordkeeping, providing plan education, and plan administration.
SIMPLE Plan (savings incentive match plan for employees) A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches 100% of employee deferrals up to 3% of compensation or provides nonelective contributions up to 2% of compensation. These contributions are immediately and 100% vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans.
Simplified employee-pension plan (SEP) A defined contribution plan in which employers make contributions to individual employee accounts (similar to IRAs).
Stock Bonus Plan A defined contribution plan in which company contributions are made in the form of company stock.
Summary Annual Report A report that companies must file annually on the financial status of the plan. The summary annual report must be automatically provided to participants every year.
Summary of Material Modifications A document that must be distributed to plan participants summarizing material modifications made to a plan.
Summary Plan Description (SPD) A document describing the features of an employer-sponsored plan. The primary purpose of the SPD is to disclose the features of the plan to current and potential plan participants. ERISA requires that certain information be contained in the SPD, including participant rights under ERISA, claims procedures and funding arrangements.
Target-Benefit Plan A type of defined contribution plan in which company contributions are based on an actuarial valuation designed to provide a target benefit to each participant upon retirement. The plan does not guarantee that such benefit will be paid; its only obligation is to pay whatever benefit can be provided by the amount in the participant's account. It is a hybrid of a money-purchase plan and a defined-benefit plan.
Tax Sheltered Annuity (TSA) Also known as a 403(b) plan, a TSA provides a tax shelter for 501(c)(3) tax exempt employers (which include public schools). Employers qualifying for a TSA may defer taxes on contributions to certain annuity contracts or custodial accounts.
Top Heavy Plan A plan in which 60% of account balances (both vested and non-vested) are held by certain highly compensated employees.
Trustee The individual, group of individuals, bank, or trust company having fiduciary responsibility for holding plan assets.
Turnover Rate (of a mutual fund)A measure of the trading activity in a mutual fund.
Vesting The participants’ ownership right to company contributions.
Vesting Schedule The structure for determining participants' right to company contributions that have accrued in their individual accounts. In a plan with immediate vesting, company contributions are fully vested as soon as they are deposited to a participant's account. Cliff vesting provides that company contributions will be fully vested only after a specific amount of time, and that employees who leave before this happens will not be entitled to any of the company contributions (with certain exceptions for death, disability or retirement). In plans with graduated vesting, vesting occurs in specified increments.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
401(k) Plan A defined contribution plan that permits employees to have a portion of their salary deducted from their paycheck and contributed to an account. Federal (and sometimes state) taxes on the employee contributions and investment earnings are deferred until the participant receives a distribution from the plan (typically at retirement). Employers may also make contributions to a participant's account.
403(b) Plan See Tax Sheltered Annuity (TSA).
Actual Deferral Percentage (ADP) An anti-discrimination test that compares the amount deferred by highly compensated employees to the deferrals of non-highly compensated employees.
Allocation The employer's contribution to a defined contribution plan.
Alternate Payee A person other than a plan participant (such as a spouse, former spouse, child, etc.) who, under a domestic relations order, has a right to receive all or some of a participant's pension benefits.
Annual Audit An independent audit required by federal law for all plans with more than 100 participants. It is also common to refer to a DOL or IRS examination of a plan as a plan audit.
Annual Report A document filed annually (Form 5500) with the IRS that reports pension plan information for a particular year, including such items as participation, funding, and administration.
Annuity A contract providing retirement income at regular intervals. See also Qualified Joint and Survivor Annuity
Automatic Deferral Default Percentage The percentage of pay that is deferred when an employee is enrolled in a plan through its automatic enrollment feature. The typical automatic deferral default percentage is 3% of pay. Participants can generally choose to defer an amount other than the default percentage.
Automatic Enrollment The practice of enrolling all eligible employees in a plan and beginning participant deferrals without requiring the employees to submit a request to participate. Plan design specifies how these automatic deferrals will be invested. Employees who do not want to make contributions to the plan must actively file a request to be excluded from the plan. Participants can generally change the amount of pay that is deferred and how it is invested.
Beneficiary A person, persons or trust designated to receive the plan benefits of a party participant in the event of the participant's death.
Cafeteria Plan A benefit plan offering a choice from a "menu" of cash or two or more benefits.
Cash-Out The distribution of assets from a qualified plan to a participant prior to retirement, or age 59 1/2 typically occurring when a participant has a balance under $1,000 and leaves a company without requesting to have their assets rolled over into an IRA or into a new employer's plan. Cash-outs are subject to federal withholding tax, and are subject to the 10% early withdrawal penalty if not rolled over.
Cash or Deferred Arrangement (CODA) A type of profit sharing or stock bonus plan in which employees may defer current compensation on a pre-tax basis.
Cash or Deferred Election A participant request to defer compensation, on a pre-tax basis to a CODA plan.
Cash Profit Sharing Plan A type of profit sharing plan in which the company makes the contributions directly to employees in cash or stock. (This type of profit sharing plan is taxable and is not considered a qualified retirement plan.)
Common Control Business are under common control when one entity owns at least 80% of the stock, profit, or capital interest in other organization, or when the same five or fewer people own a controlling interest in each entity.
Conversion The process of changing from one service provider to another.
Deferred Profit Sharing Plan A type of qualified retirement plan in which the company makes contributions to individual participant accounts.
Defined Benefit Plan A retirement plan in which the sponsoring company provides a certain benefit to participants based on a pre-determined formula.
Defined Contribution Plan An employer-sponsored plan in which contributions are made to individual participant accounts, and the final benefit consists solely of assets (including investment returns) that have accumulated in these individual accounts. Depending on the type of defined contribution plan, contributions may be made either by the company, the participant, or both.
Department of Labor (DOL) The U.S. Department of Labor (DOL) deals with issues related to the American workforce--including topics concerning pension and benefit plans. Through its branch agency the EBSA, the DOL is responsible for administering the provisions of Title I of ERISA.
Determination Letter Document issued by the IRS formally recognizing that the plan meets the qualifications for tax-advantaged treatment.
Discrimination Testing Numerical measurements used to determine if tax qualified retirement plans are in compliance with several regulations. Typically, the process of determining whether the plan is in compliance is collectively called discrimination testing.
Disclosure Certain types of information plan sponsors must provide plan participants to access certain types of information, including the summary plan descriptions, summary of material modifications, and summary annual reports.
Distribution Any payout made from a retirement plan. See also Lump Sum Distribution and Annuity.
Early Withdrawal Penalty A 10% penalty tax for withdrawal of assets from a qualified retirement plan prior to age 59 1/2, death, disability, or retirement. This 10% penalty tax is in addition to regular federal and (if applicable) state tax.
Eligibility Conditions that must be met in order to participate in a plan, such as age or service requirements.
Eligible Employees Employees who meet the requirements for participation in an employer-sponsored plan.
Employee Benefits Security Administration (EBSA) An agency of the Department of Labor responsible for protecting the integrity of retirement plans, health plans and other employee benefits.
ERISA A federal law that requires plan sponsors to design and administer their plans in accordance with the Employee Retirement Income Security Act of 1974 (ERISA). Among its statutes, ERISA calls for proper plan reporting and disclosure to participants.
ERISA Rights Statement A statement required by ERISA that explains participant and beneficiary rights and must be included within a summary plan description (SDP).
ESOP (employee stock ownership plan) A qualified defined contribution plan in which plan assets are invested primarily or exclusively in the securities of the sponsoring employer.
Excess Aggregate Contributions After-tax participant contributions or matching employer contributions that cause a plan to fail the 401(m) actual contribution percentage (ACP) non-discrimination test.
Excess Benefit Plan A plan, or part of a plan, maintained to provide benefits that exceed IRS Code 415 limits on contributions and benefits.
Excess Contributions Pre-tax participant contributions that cause a plan to fail the 401(k) actual deferral percentage (ADP) non-discrimination test.
Expense Ratio The percentage of a fund's assets that are used to pay its annual expenses.
Facts and Circumstances Test The test determining whether financial need exists for a 401(k) hardship withdrawal.
Fidelity Bond A bond that protects participants in the event a fiduciary or other responsible person steals or mishandles plan assets.
Fiduciary A person with the authority to make decisions regarding a plan's assets or important administrative matters. Fiduciaries are required under ERISA to make decisions based solely on the best interests of plan participants.
Fiduciary Insurance Insurance that protects plan fiduciaries in the event that they are found liable for a breach of fiduciary responsibility.
Forfeiture Plan assets surrendered by participants upon termination of employment before being fully vested in the plan. Forfeitures may be distributed to the other participants in the plan or sued to offset employer contribution.
Form 1099R A form sent to the recipient of a plan distribution and filed with the IRS listing the amount of the distribution.
Form 5500 A form which all qualified retirement plans (excluding SEPs and SIMPLE IRAs) must file annually with the IRS.
Guaranteed Investment Contracts (GICs) Accounts with an insurance company at a fixed rate of interest.
Hardship or In-Service Distribution A participant's withdrawal of their plan contributions prior to retirement. Eligibility may be conditioned on the presence of financial hardship. These distributions are taxable as early distributions and are subject to a 10% penalty tax if the participant is under age 59 1/2.
Highly Compensated Employees (HCEs) An HCE, according to the Small Business Job Protection Act of 1996, is an employee who received more than $100,000 in compensation (indexed annually) during the last plan year OR is a 5% owner in the company.
Individual Retirement Account (IRA) Personal retirement vehicles that allows a person to make annual tax deductible or non-deductible contributions. These accounts must meet IRS Code 408 requirements, but are created and funded at the discretion of the individual. They are not employer sponsored plans.
Internal Revenue Service (IRS) The branch of the U.S. Treasury Department is responsible for administering the requirements of qualified pension plans and other retirement vehicles. The IRS also worked with the DOL and the PWBC to develop Form 5500, and is responsible for monitoring the data submitted annually on Form 5500 reports.
Keogh Plan A qualified defined contribution plan permitting self-employed individuals to contribute a portion of their earnings pre-tax to an individual account.
KSOP A plan arrangement that includes both 401(k) contributions and an ESOP.
Leased Employee An individual contracted to a leasing organization that provides services for the company.
Lump-Sum Distribution The distribution at retirement of a participant’s entire account balance within one calendar year due to retirement, death or disability.
Matching Contribution A contribution made by the company to the account of the participant in ratio to contributions made by the participant.
Material Modification A change in the terms of the plan that may affect plan participants, or other significant changes in a summary plan document (SDP).
Median Market Cap An indicator of the size of companies in which a fund invests.
Money Market Fund A mutual fund seeking to generate income for participants through investments in short-term securities.
Money-Purchase Plan A type of defined contribution plan in which the employer's contributions are determined by a specific formula, usually as a percentage of pay. Contributions are not dependent on company profits.
Multiemployer Plan A pension plan receiving contributions from more than one employer contributes, and which usually is maintained according to collective bargaining agreements.
Mutual Fund A single account designed to create a diverse portfolio that may help to reduce the risk of owning individual investments.
Named Fiduciary One or more named individuals who have authority to control and manage the operations of the plan.
Nonelective Contribution An employer contribution that cannot be withdrawn or paid to the employee in cash. This contribution is neither a matching contribution or an elective contribution.
Non-Highly Compensated Employees (NHCEs) Employees who are not highly compensated. See highly compensated employees.
Non-Qualified Deferred Compensation Plan A plan subject to tax, in which the assets of certain employees (usually Highly Compensated Employees) are deferred. These funds may be reached by an employer's creditors.
Participant Directed Accounts Investment options offered to participants that allow them to choose their own investment mix.
Party-In-Interest Any individual or group having direct interest in the plan including: the employer; the directors, officers, employees or owners of the employer; any employee organization whose members are plan participants; plan fiduciaries; and plan service providers.
Pension Benefit Guaranty Corporation (PBGC) A federal agency established by Title IV of ERISA for the insurance of defined benefit pension plans. The PBGC provides payment of limited pension benefits if a plan terminates and is unable to cover all required benefits.
Plan Administrator The individual, group or corporation named in the plan document as responsible for day to day operations. The plan sponsor is generally the plan administer if no other entity is named.
Plan Loan Loan from a participant's accumulated plan assets, not to exceed 50% of the balance or $50,000, whichever is less. Loans are an optional plan feature.
Plan Sponsor The entity responsible for establishing and maintaining the plan.
Plan Year The calendar, policy or fiscal year for which plan records are maintained.
Portability This occurs when, upon termination of employment, an employee transfers retirement funds from one employer's plan to another without penalty.
Price/Book Ratio The share price of a stock divided by its net worth, or book value, per share.
Price/Earnings Ratio The ratio of a stock's current price to its earnings per share over the past year. The P/E ratio of a fund is the weighted average of the P/E ratios of the stocks it holds.
Prohibited Transaction Activities regarding treatment of plan assets by fiduciaries that are prohibited by ERISA. These include transactions with a party-in-interest, including, sale, exchange, lease, or loan of plan securities or other properties. Any treatment of plan assets by the fiduciary that is not consistent with the best interests of the plan participants is a prohibited transaction
Profit Sharing Plan A company-sponsored plan funded only by company contributions. Company contributions may be determined by a fixed formula related to the employer's profits, or may be at the discretion of the board of directors.
Qualified Domestic Relations Order (QDRO) A judgment, decree or order that creates or recognizes an alternate payee's (such as former spouse, child, etc.) right to receive all or a portion of a participant's retirement plan benefits.
Qualified Joint and Survivor Annuity (QJSA) An annuity with payments continuing to the surviving spouse after the participant's death, equal to at least 50% of the participant's benefit.
Qualified Plan Any plan that qualifies for favorable tax treatment by meeting the requirements of section 401(a) of the Internal Revenue Code and by following applicable regulations. Qualified plans include 401(k) and deferred profit sharing plans.
Rollover The action of moving plan assets from one qualified plan to another or to an IRA within sixty days of distributions, while retaining the tax benefits of a qualified plan.
Roth 401(k) A 401(k) feature that allows employees to make elective contributions on an after-tax basis. Qualified distributions from these plans, including both the Roth contributions and their associated earnings, are distributed tax-free.
Safe Harbor Rules Provisions that exempt certain individuals or kinds of companies from one or more regulations.
Savings Incentive Match Plan for Employees See SIMPLE Plan.
Schedule SSA A form that must be filed by all plans subject to ERISA Section 203 minimum vesting requirements. The schedule, which is attached to Form 5500, provides data on participants who separated from service with a vested benefit but were not paid their benefits.
Service Provider A company that provides any type of service to the plan, including managing assets, recordkeeping, providing plan education, and plan administration.
SIMPLE Plan (savings incentive match plan for employees) A type of defined contribution plan for employers with 100 or fewer employees in which the employer matches 100% of employee deferrals up to 3% of compensation or provides nonelective contributions up to 2% of compensation. These contributions are immediately and 100% vested, and they are the only employer contribution to the plan. SIMPLE plans may be structured as individual retirement accounts (IRAs) or as 401(k) plans.
Simplified employee-pension plan (SEP) A defined contribution plan in which employers make contributions to individual employee accounts (similar to IRAs).
Stock Bonus Plan A defined contribution plan in which company contributions are made in the form of company stock.
Summary Annual Report A report that companies must file annually on the financial status of the plan. The summary annual report must be automatically provided to participants every year.
Summary of Material Modifications A document that must be distributed to plan participants summarizing material modifications made to a plan.
Summary Plan Description (SPD) A document describing the features of an employer-sponsored plan. The primary purpose of the SPD is to disclose the features of the plan to current and potential plan participants. ERISA requires that certain information be contained in the SPD, including participant rights under ERISA, claims procedures and funding arrangements.
Target-Benefit Plan A type of defined contribution plan in which company contributions are based on an actuarial valuation designed to provide a target benefit to each participant upon retirement. The plan does not guarantee that such benefit will be paid; its only obligation is to pay whatever benefit can be provided by the amount in the participant's account. It is a hybrid of a money-purchase plan and a defined-benefit plan.
Tax Sheltered Annuity (TSA) Also known as a 403(b) plan, a TSA provides a tax shelter for 501(c)(3) tax exempt employers (which include public schools). Employers qualifying for a TSA may defer taxes on contributions to certain annuity contracts or custodial accounts.
Top Heavy Plan A plan in which 60% of account balances (both vested and non-vested) are held by certain highly compensated employees.
Trustee The individual, group of individuals, bank, or trust company having fiduciary responsibility for holding plan assets.
Turnover Rate (of a mutual fund)A measure of the trading activity in a mutual fund.
Vesting The participants’ ownership right to company contributions.
Vesting Schedule The structure for determining participants' right to company contributions that have accrued in their individual accounts. In a plan with immediate vesting, company contributions are fully vested as soon as they are deposited to a participant's account. Cliff vesting provides that company contributions will be fully vested only after a specific amount of time, and that employees who leave before this happens will not be entitled to any of the company contributions (with certain exceptions for death, disability or retirement). In plans with graduated vesting, vesting occurs in specified increments.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Wednesday, August 1, 2007
401k & Executive Compensation Plans
Due to certain limitations on contributions to qualified retirement plans, many business owners and executives are having a difficult time adequately saving for their retirement. Studies show that the average employee needs at least 80% of their income to maintain their current standard of living in retirement. Highly compensated employees are normally replacing only 30% of their income through qualified plans and social security benefits.
Integrity Financial Corporation designs solutions for your business to attract and retain key employees. Non-qualified executive benefits provide additional retirement income for select key employees by layering non-qualified strategies over an existing qualified retirement plan.
Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Integrity Financial Corporation designs solutions for your business to attract and retain key employees. Non-qualified executive benefits provide additional retirement income for select key employees by layering non-qualified strategies over an existing qualified retirement plan.
Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Profit Sharing & 401k Plan Ideas
The intelligent 401k advisor recommends a variety of plans depending on the specific needs of the business.
A profit sharing plan is a plan that makes no promises of contributions or benefits. The business can decide each year if it will make a contribution on behalf of the plan participants. Profits are not a requirement to make the contribution. Once a contribution is made, the earnings on the funds will ultimately determine the benefit level at retirement. The maximum deduction to the business in any one-year is 25% of the total salaries of the plan participants plus the amount of salary deferrals made to the plan. The maximum allocation that can be made to any one participant for the year is 100% of salary to a maximum dollar limit of $45,000 (for the year 2007).
A traditional profit sharing plan will allocate the contribution to each participant in proportion to salaries paid. For example, if a participant’s salary is 10% of the sum of the salaries of all participants, that participant will receive 10% of the company’s plan contribution.
An age-weighted profit sharing plan will allocate the contribution according to age. Older employees will receive larger contributions as a percentage of salary. The allocation is determined by calculating the contributions required to fund the same projected hypothetical benefit at retirement for all participants. Then each participant’s percentage allocation determined in this manner is applied to the actual annual contribution of the company. The net result is larger allocations, as a percentage of salary, for older participants.
A new comparability profit sharing plan allows a large amount of flexibility in allocating the contribution among participants. Participants are separated into "reasonable" classes. Each class may receive different allocation percentages. Certain guidelines must be met to assure no discrimination among plan participants. This is the most flexible type of profit sharing plan and can be very appealing to many small business owners and their advisors.
A 401k plan is a profit sharing plan that allows employees to make pre-tax contributions to the plan in addition to any employer’s contribution. These 401k provisions allowing elective deferrals by the employees may be incorporated into any of the types of profit sharing plans described above. These deferrals are held in individual accounts and the earnings on the funds will determine the level of benefits at retirement. The maximum deferral allowed by an employee for the year 2007 is 100% of salary to a maximum dollar amount of $15,500. (If the employee is at least age 50 at any time during the plan year, he/she may defer an additional $5,000 "catch-up contribution".) The contribution allowed by highly compensated employees may be limited depending on the results of required comparison testing of levels of contributions by non-highly compensated employees.
A safe harbor 401k profit sharing plan will assure the maximum contributions made by highly compensated employees will not be limited by the contribution level of non-highly compensated employees. Certain employer contributions must be made on behalf of non-highly compensated for this to be accomplished.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
A profit sharing plan is a plan that makes no promises of contributions or benefits. The business can decide each year if it will make a contribution on behalf of the plan participants. Profits are not a requirement to make the contribution. Once a contribution is made, the earnings on the funds will ultimately determine the benefit level at retirement. The maximum deduction to the business in any one-year is 25% of the total salaries of the plan participants plus the amount of salary deferrals made to the plan. The maximum allocation that can be made to any one participant for the year is 100% of salary to a maximum dollar limit of $45,000 (for the year 2007).
A traditional profit sharing plan will allocate the contribution to each participant in proportion to salaries paid. For example, if a participant’s salary is 10% of the sum of the salaries of all participants, that participant will receive 10% of the company’s plan contribution.
An age-weighted profit sharing plan will allocate the contribution according to age. Older employees will receive larger contributions as a percentage of salary. The allocation is determined by calculating the contributions required to fund the same projected hypothetical benefit at retirement for all participants. Then each participant’s percentage allocation determined in this manner is applied to the actual annual contribution of the company. The net result is larger allocations, as a percentage of salary, for older participants.
A new comparability profit sharing plan allows a large amount of flexibility in allocating the contribution among participants. Participants are separated into "reasonable" classes. Each class may receive different allocation percentages. Certain guidelines must be met to assure no discrimination among plan participants. This is the most flexible type of profit sharing plan and can be very appealing to many small business owners and their advisors.
A 401k plan is a profit sharing plan that allows employees to make pre-tax contributions to the plan in addition to any employer’s contribution. These 401k provisions allowing elective deferrals by the employees may be incorporated into any of the types of profit sharing plans described above. These deferrals are held in individual accounts and the earnings on the funds will determine the level of benefits at retirement. The maximum deferral allowed by an employee for the year 2007 is 100% of salary to a maximum dollar amount of $15,500. (If the employee is at least age 50 at any time during the plan year, he/she may defer an additional $5,000 "catch-up contribution".) The contribution allowed by highly compensated employees may be limited depending on the results of required comparison testing of levels of contributions by non-highly compensated employees.
A safe harbor 401k profit sharing plan will assure the maximum contributions made by highly compensated employees will not be limited by the contribution level of non-highly compensated employees. Certain employer contributions must be made on behalf of non-highly compensated for this to be accomplished.
Integrity Financial Corporation helps business owners and individuals build a financial legacy through well designed executive compensation and retirement plans. Our clients can expect to receive personalized service and expertise, built on a foundation of trust. Call us at 425-454-1254 for the Seattle or Bellevue area, or at 1-800-794-401k. Or visit our website at www.ifc401k.com
Tuesday, July 24, 2007
Roth 401k Opportunity
Compared to the Roth IRA, the Roth 401k has created a tremendous opportunity for employees and owners alike. The Pension Protection Act of 2006 made permanent the idea of the Roth 401k. Unfortunately, most owners and executives are above the income threshhold for a Roth IRA and are not allowed to participate. However, there is no income restriction for those contributing after-tax dollars to a Roth 401k. Furthermore, the contribution limitations are significantly higher for the Roth 401k ($15,500/yr - $20,500/yr depending on the employees age). Call us today to see how we can integrate a Roth feature into your existing 401k plan. www.ifc401k.com
401k Rollover
Did you know that the investment advice given by many financial professionals is distorted by commissions and brokerage fees?
Integrity Financial Corporation differs by offering independent and unbiased investment advice on a fee only basis to individuals interested in diversifying their retirement and corporate assets through premium allocation models. Typically, our new clients are seeking personalized service and investment expertise, and they are concerned about conflicts of interest and liquidity of funds. Before working with IFC, many of our clients didn’t know that they could work with a financial professional without paying brokerage fees or commissions.
Integrity Financial Corporation uses fundamental investment principals in advising clients to strategically balance their investments across asset classes, then takes the diversification a step further by using exchange traded funds within the allocation model. The end result is a professionally managed account, with low overall fees, and high liquidity in the event that the client needs access to the funds.
Visit Integrity Financial Corporation's website at www.ifc401k.com
Integrity Financial Corporation differs by offering independent and unbiased investment advice on a fee only basis to individuals interested in diversifying their retirement and corporate assets through premium allocation models. Typically, our new clients are seeking personalized service and investment expertise, and they are concerned about conflicts of interest and liquidity of funds. Before working with IFC, many of our clients didn’t know that they could work with a financial professional without paying brokerage fees or commissions.
Integrity Financial Corporation uses fundamental investment principals in advising clients to strategically balance their investments across asset classes, then takes the diversification a step further by using exchange traded funds within the allocation model. The end result is a professionally managed account, with low overall fees, and high liquidity in the event that the client needs access to the funds.
Visit Integrity Financial Corporation's website at www.ifc401k.com
Tuesday, July 10, 2007
401k History & Background
The 401(k) plan is a type of employer-sponsored retirement plan named after a section of the U.S. Internal Revenue Code. A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage deferred directly into his 401(k) account. In participant-directed plans, the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.
All assets in 401(k) plans are tax deferred. Before the January 1, 2006 effective date of the designated Roth account provisions, all 401(k) contributions were on a pre-tax basis, and the contributions and growth on them are not taxed until the money is withdrawn. With the enactment of the Roth provisions, participants in 401(k) plans that have the proper amendments can allocate some or all of their contributions to a separate designated Roth account, commonly known as a Roth 401(k). Qualified distributions from a designated Roth account are tax free, while contributions to them are on an after-tax basis (i.e., income tax is paid or withheld on the income in the year contributed).
In 1978, Congress amended the Internal Revenue Code to add section 401(k). Work on developing the first plans began in 1979. Originally intended for executives, section 401(k) plans proved popular with workers at all levels because it had higher yearly contribution limits than the Individual Retirement Account (IRA); it usually came with a company match, and provided greater flexibility in some ways than the IRA, often providing loans and, if applicable, offered the employer's stock as an investment choice. Several major corporations amended existing defined contribution plans immediately following the publication of IRS proposed regulations in 1981.
A primary reason for the explosion of 401(k) plans is that such plans are cheaper for employers to maintain than a pension for every retired worker. With a 401(k) plan, instead of required pension contributions, the employer only has to pay plan administration and support costs if they elect not to match employee contributions or make profit sharing contributions. In addition, some or all of the plan administration costs can be passed on to plan participants. In years with strong profits employers can make matching or profit sharing contributions.
All assets in 401(k) plans are tax deferred. Before the January 1, 2006 effective date of the designated Roth account provisions, all 401(k) contributions were on a pre-tax basis, and the contributions and growth on them are not taxed until the money is withdrawn. With the enactment of the Roth provisions, participants in 401(k) plans that have the proper amendments can allocate some or all of their contributions to a separate designated Roth account, commonly known as a Roth 401(k). Qualified distributions from a designated Roth account are tax free, while contributions to them are on an after-tax basis (i.e., income tax is paid or withheld on the income in the year contributed).
In 1978, Congress amended the Internal Revenue Code to add section 401(k). Work on developing the first plans began in 1979. Originally intended for executives, section 401(k) plans proved popular with workers at all levels because it had higher yearly contribution limits than the Individual Retirement Account (IRA); it usually came with a company match, and provided greater flexibility in some ways than the IRA, often providing loans and, if applicable, offered the employer's stock as an investment choice. Several major corporations amended existing defined contribution plans immediately following the publication of IRS proposed regulations in 1981.
A primary reason for the explosion of 401(k) plans is that such plans are cheaper for employers to maintain than a pension for every retired worker. With a 401(k) plan, instead of required pension contributions, the employer only has to pay plan administration and support costs if they elect not to match employee contributions or make profit sharing contributions. In addition, some or all of the plan administration costs can be passed on to plan participants. In years with strong profits employers can make matching or profit sharing contributions.
Friday, July 6, 2007
Kristofer R. Gray, MPA, CRPS
Chartered Retirement Plan Specialist
Member of the Tax & Fiscal Policy Council of the Association of Washington Business
Member of the Western Pension & Benefits Conference
Master's Degree in Administration from the University of Washington
A longtime resident fo the Pacific Northwest
Thursday, June 28, 2007
Association of Washington Business 401k Plan
Integrity Financial Corporation (www.ifc401k.com) was recently selected to advise and manage the Association of Washington Business' 401k plan. In a recent conversation with Dick Walter, the VP of Operations for the AWB, he told Kristofer that prospective clients of IFC are welcome to call him and hear how IFC has improved their 401k plan over the past year (www.awb.org).
The Association of Washington Business is Washington State's Chamber of Commerce. With a diverse membership consisting of businesses large and small, urban and rural, and from all parts of the state, the Association of Washington Business lobbies in Olympia for public policy that encourages economic growth, boosts productivity and creates jobs.
The Association of Washington Business is Washington State's Chamber of Commerce. With a diverse membership consisting of businesses large and small, urban and rural, and from all parts of the state, the Association of Washington Business lobbies in Olympia for public policy that encourages economic growth, boosts productivity and creates jobs.
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