www.401k-4-1.com for information about 401k trustees and fiduciary responsibilities-Topics include:
- 401k Plan Documents And Cross-Tested 401k Plans,
- ERISA Documents Available,
- Form M-1, Annual Reports for Multiple Employer Welfare Arrangements (MEWAs),
- Summary Plan Descriptions (SPDs) and Summary of Material Modifications (SMMs),
- What is a cross-tested 401(k) plan?,
- What is the advantage of a cross-tested 401(k) plan?,
- Must an employer make a contribution to a cross-tested 401(k) plan every year?,
- How is a cross-tested 401(k) plan designed?,
- How many cross-testing methods exist?
www.401k-help.com for information about 401k plan documentation, design and set-up-Topics include:
- 401k self-directed brokerage windows,
- Recommended 401k with brokerage windows for small businesses,
- 401k brokerage window investments,
- 401k investments -- list,
- Additional information about 401k broker windows,
mutual fund broker windows,
- 401k brokerage windows statistics
www.safe-harbor-401k.com for information about internet-based 401k plans-Topics include:
- Tip About 401k,
- Mutual Fund Investment Companies,
- Internet Use for
www.easy-online-401k.com for information about online 401k information and advice-Topics include:
- on-line 401k information and advice,
- online 401k for small
- online retirement plans and planning,
- on-line HR,
- online investing,
- online 401k for small businesses
www.401k-plans.net for information about ethical mutual fund investing and 401k software-Topics include:
- 401k for small businesses using no-load mutual funds
including ethical funds investing,
- 401k plans using ethical mutual funds,
- Ethical funds investing for 401k,
- PAX World Funds,
- Ethical Investing for small 401k plans,
- mutual fund investment companies,
- mutual fund terms
www.easy401konline.com for information about rules controling 401k conversions-topics include:
- 401k Plan Conversions,
- Sample 401k Plan Conversions,
- Average 401k
- US Code That Created 401k Plans
www.401k-fees.com for information about comparison of fees for small 401k plan-topics include:
- Small business 401k costs and fees compared -- the best 401k for
- 401k pension administration fees comparison,
- comparison of 401(k) fees and costs,
- 12b-1 management fees and 401k costs,
- Small business
401k costs and fees compared -- the best 401k for small businesses,
- 401k Participants Pay 85% of a Typical Plan's Costs,
- Revenue Sharing and 12b-1 Fees
www.401k-census.com for information about 401k Census "blind samples" investment and contribution data from many thousands of individual 401k investor accounts.
Enrolling Participants in the Plan
Planning an Employee Communications Strategy
Before you can expect people to join the 401(k) plan, you're going to have to make them aware that it exists; moreover, you must make them aware of the general and specific benefits that participating in it affords. In other words, you're going to have to "sell" the plan to your fellow employees. It shouldn't be a hard sell, though, considering your product. A 401(k) EasyTM 401(k) Plan is a great benefit!
We've included a number of documents to help you promote the plan to your co-workers. They are listed at the end of this chapter. In addition, your 401(k) EasyTM package includes a video slide presentation which you can present at the enrollment meeting, or which you can excerpt information from to add to your own presentation.
Planning and Conducting Enrollment Meetings
Some companies like to hold one big open enrollment meeting for all eligible and potentially eligible employees (such as those who are shy of the length of service requirement, for example, but will become eligible in the near future). Other companies prefer to meet with smaller groups, or even to brief individual employees. Other companies do all three. You can do whichever seems best for your company.
Another option is what is called automatic or "passive" 401(k) enrollment, in which every employee is automatically enrolled in the 401(k) plan as soon as he or she meets the plan's age and length of service participation requirements, whether or not he or she has made any active effort at joining the plan. Passively enrolled employees participate at whatever salary deduction rate and into whatever 401(k) investment(s) the company's published 401(k) passive enrollment policy stipulates; a 3% of salary deduction rate and a money market mutual fund are the most popular passive enrollment policy coupling. Ample notification of the company's passive 401(k) enrollment policy and other restrictions and notification rules apply. For more on passive enrollment, please visit the 401(k) Basics page of the 401(k) EasyTM website at www.401keasy.com.
Promoting participation in the plan doesn't end with the initial enrollment meeting, however. You will continuously be informing newly eligible employees, and eligible employees who so far haven't participated, about the merits of the plan and encouraging them to join.
How you go about explaining the vital information to your employees is up to you - but remember, your plan's health and livelihood depend on a participation pool that's balanced in the eyes of the IRS (see "Compliance Testing" in Chapter 8). It's your job to make sure plenty of eligible rank-and-file employees join the plan.
Planning the Meeting
Tip: Before planning your meeting, we suggest taking the time to review the video slide presentation, which addresses the following points in detail.
As Plan Administrator, you are the primary information source about the company plan. Before and during the enrollment meeting, you must impress upon the employees a number of important points, most notably the following:
1. The tremendous need for personal retirement planning (the spiraling descent of Social Security, the current lack of adequate personal retirement savings)
2. The basic benefits of participating in a 401(k) plan (deferred income taxation, the compounding effect of tax-deferred investing, the 401(k)'s relatively high annual contribution limits, the bonus of any matching contributions being made by the company. . .)
3. How easy participating is (automatic salary deferrals, flexible contribution amount/deferral percentage, flexible investment selections)
4. That people can access their 401(k) money - via a 401(k) loan or a hardship withdrawal - before they reach retirement, but that doing so has a compounding negative effect on their final balance, just as deferring a little more money into the 401(k) each month has a compounding positive effect that can really add up over time!
5. What your company plan offers (specific investments, loan provisions, matching provisions, vesting provisions, as applicable)
Specifics of your presentation may include the following points:
- That a 401(k) plan is an IRS-sanctioned "tax-deferred retirement savings plan." Participants don't pay federal income tax (nor often state income tax) on anything they have their employer divert into the plan , or anything the employer chooses to contribute to participants' accounts, or any investment returns the accounts earn , until the money is withdrawn from the plan (usually at the participant's retirement).
- That deferring the payment of income taxes until later in life has two benefits: (1) the tremendous savings potential created by the compounding effect of tax-deferred savings, and (2) a likely lower total income tax assessment after retirement because the person will then probably be in a lower income tax bracket than during his or her working years.
- That the idea is to leave money in the 401(k) until the employee reaches at least age 59 1/2, and there are substantial early withdrawal penalties (plus income tax assessments)
- That if employees need to access their 401(k) money they can, either in the form of a 401(k) loan, which is sort of borrowing from themselves but which does bear a reasonable rate of interest, or in the form of a hardship withdrawal, which doesn't have to be paid back and so doesn't bear any interest, but which does involve substantial early withdrawal penalties and income taxations that can eat up close to half the withdrawal. Furthermore, a participant cannot choose to take a hardship withdrawal if he or she can qualify for a 401(k) loan; hardship withdrawals must be a means of last resort.
- That 401(k) loans are popular with participants. They believe it's nice to know they have access to their money if they genuinely need it. But 401(k) loans do negatively impact the final account balance: the same compounding effect that bolsters 401(k) accounts also magnifies any breaks in the income stream into the accounts.
Tip About 401k
Many small businesses overlook retirement planning for themselves and don't think that they can afford them for their employees. Retirement plans can be a great benefit for both you and your employee, and there are low-cost options available for small businesses. Target Laboratories (www.targetlab.com) a small company, is maximizing the benefits of the 401k, by providing professional 401k investment advice to company employee.
Tip: The standard 401(k) EasyTM loan application is designed to limit loans to only serious financial needs such as home purchase (or to prevent foreclosure), education, medical, or disability needs. We strongly encourage employers to adhere to such a standard for loans and not liberalize lending criteria. The statistics on 401(k) loans are dismal, and many loans fall into default because they are not repaid prior to the borrower's leaving the company. Avoid unnecessary headaches: keep borrowing to a minimum.
- That participation is completely voluntary. The employee chooses whether or not to participate. The employee chooses how much money to divert into his or her 401(k) account, either as a flat amount per month or a percentage of monthly earnings.
- That participating in a 401(k) makes saving money easy: the money is deducted automatically from the participant's pay before the person receives his or her paycheck, helping the person save money he or she might otherwise spend.
- That 401(k) money is portable. That is, if participants leave the company for any reason, their 401(k) money goes, too: they can simply withdraw it - but they'll be hit with early withdrawal penalties and IRS income tax withholding - or they can protect their accounts' tax-deferred status by transferring them into their new employers' 401(k)s or into an IRA, where the money can continue to grow and compound tax-free until they retire. The latter choice is called an IRA rollover. Participants can roll money they've accumulated in other retirement savings plans over into the current 401(k), too.
- (Optional) That the company will be contributing to participants' accounts, too. That means even more money compounding in participants' accounts through the years! These contributions are called matching contributions and they'll be made at a rate of __________________________________________________________ (fill in your company's matching formula).
- That matching contributions are designed to reward lasting employment with the company. To this end, many sponsors require a few years of being with the company before the matching contributions are 100% the participant's property. This is called "vesting" and it only affects someone if he or she leaves the company before the time at which matching contributions are 100% vested. The vesting formula being applied to matching contributions is __________________ (fill in your company's vesting formula).
- That all 401(k) participants will receive two monthly statements, one from the company (which 401(k) EasyTM compiles for you) and another from the mutual fund company mailed directly to their home address. The Plan Administrator will also receive a copy of the statements mailed to the participants' home addresses.
- That participants have several investment options open to them, that the family of investments being offered through the 401(k) plan offer a diversity of investment goals.
- That investors should always read investment prospectuses before putting any money into an investment.
- That there are three principles to good investing: (1) diversification; (2) selecting investments that fit the employee's personality, goals, and temperament; and (3) maintaining a long-term perspective (for instance, investors may actually benefit if investment values fall, because it means they can buy more shares per dollar now and if the value rises in the future those shares will be worth more. This concept of purchasing mutual fund shares at lower prices is called dollar cost averaging.)
- That 401(k) investments are long-term investments: the market will go through bumps and glitches, but, over the long-run, things tend to even out.
- That 401(k)s are flexible: a participant can change investment selections or percentages and/or deferral amounts as time passes and needs change.
- That some investments companies expect participants to keep their money in the investment for a minimum amount of time. If they pull it out [for a 401(k) loan, for instance] before this time has elapsed, the mutual fund company may charge an exit fee. Any such fee is generally the responsibility of the participant to pay, and is clearly spelled out in the investment prospectus -- which is just one reason to carefully read each prospectus before investing any money.
- That most mutual fund companies don't charge any exit fees if the participant is just moving money from one portfolio to another within the same family of funds, say from a stock-based John Hancock portfolio into a John Hancock bond portfolio.
Materials You'll Need
We touch on each of the above topics in the 401(k) EasyTM enrollment meeting literature provided. The literature itself (listed at the end of this chapter) is under Reports in your 401(k) EasyTM CD-ROM. If you have not already done so, you should familiarize yourself with each of these items before passing them out to employees.
Enrollment Meeting Guidelines and Agenda
Table 3-1 gives you some guidelines for conducting an enrollment meeting, large or small; Table 3-2 is a suggested agenda. A lot depends on the level of enthusiasm of the prospective participants, and how much they were involved in the choice to have a company 401(k) plan. The more they already know about 401(k)s, the easier your enrollment meeting will be. You might wish to prepare them by sending out packets of material to each employee several times prior to the first enrollment meeting (varying the information in each packet sent), and of course advertising the whole subject of 401(k)s in your company newspaper and on bulletin boards throughout company facilities.
The fact that you already have contracted for a 401(k) EasyTM plan means that your company believes it will be popular and well received (otherwise the company never would have spent the money). But don't assume the employees know all there is to know.
Tip: The mutual fund company will mail prospectuses to you, but order them at least 2 weeks in advance of the meeting. Also, do NOT use the mutual fund account application supplied by the fund company. Use 401(k) EasyTM's internally-created mutual fund application for all plan assets.
Table 3-1. ENROLLMENT MEETING GUIDELINES
• Plan the meeting well in advance.
• Decide if you want one big meeting, or a series of smaller ones. Big meetings allow you to disseminate the same information to everyone at the same time, and everyone hears all the questions and their answers; smaller groups, on the other hand, allow more interaction and make some employees feel more comfortable to ask questions.
• Send a personal notice to each employee you wish to attend, at least twice, by e-mail and through the company mail, stressing the subject matter of the meeting and how important it is to attend (what the benefits to the employee will be).
• Schedule the meeting at a place and time convenient for the employees (e.g., if employees use car pools, don't schedule it at the end of the day unless all the car-pooling employees are invited to the meeting).
• Advertise the meeting on company billboards and elsewhere around the facility well in advance of the meeting. (401(k) EasyTM includes material that can be used for this advertising.)
• Collate all the handouts to be given out at the meeting into packages, at least one per employee (have extras); put the handout packages into colorful envelopes. Make sure each employee takes one (for example, by placing a package at each chair).
• Prepare an agenda and stick to it (see Table 3-2). A copy of the agenda should be included at the beginning of the handout package.
• Include a one-page summary of the plan, its key provisions, features, and benefits, as part of the handout package.
• If this is a large group, have a top-level officer of the company (preferably the CEO) introduce the meeting and give a "pep talk." A good idea even for smaller meetings - if you can get the executive to come to multiple meetings!
• Order enough mutual fund prospectuses so that everyone can take a set home.
Tip: If employees have questions that you cannot answer, you should check our website Frequently Asked Questions pages. If the question relates to how 401(k) EasyTM handles something, such as investments, you can call our technical support number: (818)501-1597.
Table 3-2. SUGGESTED ENROLLMENT MEETING AGENDA
1. Introduction by high-level management
2. What a 401(k) plan is and why the company is offering it to the employees
3. The benefits to the employee of participating in a pre-tax savings plan
4. What's in your handout package and why each document is there
5. Summary of the plan
6. Mutual fund investment options
7. How to determine your personal investor profile and the type(s) of investments that best fit your needs. The possible need for personal investment and tax advice from a qualified advisor.
8. The importance of contacting the mutual fund company, asking for prospectuses that interest you, and studying them carefully
9. Choosing the right mutual fund
10. Calculating how much to contribute
11. How to fill out the enrollment form
12. Where and when to return it
13. Questions and answers