Frequently Asked Questions
Q:What is a Third Party Administrator?
A: Third Party Administrator is an outside vendor of recordkeeping and administrative services for businesses that sponsor a Retirement or Employee Benefit Plan. Typically, the Third Party Administrator is a specialist in the field with its complete focus on the design, implementation, and on-going administration of a qualified or non-qualified retirement plans.
Q:What is a 401(k) Plan?
A: 401(k) Plan is an Employer sponsored Plan that allows employees to save money on a pre-tax basis.
Q:What is a Defined Contribution Pension Plan?
A: Defined Contribution Pension Plan is an Employer sponsored Plan that allows an Employer to accumulate Retirement benefits for employees through fixed or discretionary annual contributions.
Q:What is a Defined Benefit Pension Plan?
A: Defined Benefit Pension Plan is an Employer Sponsored Plan that defines a monthly retirement benefit at the Social Security Retirement Age, or a stipulated retirement age. The Plan is formula driven for all eligible employees, and requires a contribution each year.
Q:What is the maximum an employee can contribute to a 401(k) Plan in a given year?
A: The maximum for pre-tax or "Salary Savings" contributions under IRC Section 401(k) limitations is $19,500 for the year 2021 (plus $6,500 "catch-up" contribution for 2021 calendar year). Other limitations on contributions, such as total contribution (combined employee and employer) or testing requirements, may reduce that maximum for a specific employee, plan, or plan year.
Q:What is the maximum an Employer can contribute on the behalf of its employees in a given year?
A: Employer contributions are limited by the total participating compensation and testing requirements for the employee and Plan levels. Generally, the total contribution for an individual employee would be limited to the lesser of 25% of recognized compensation or $58,000 for the year 2021. On the Plan level, the total employer contributions is limited to 25% of total participating compensation.
Q:How often will I receive statement reflecting my account value and activity?
A: 401(k) Plan Participants and Participants under "Participant investment directed" Defined Contribution Plans generally receive Quarterly Statements. Participants under traditional "Trustee-directed" Defined Contribution and Defined Benefit Plans generally receive annual statements.
Q:What options are available for the investment of my account balances?
A: Investment options differ from plan to plan and can include a variety of mutual funds, money market funds, or Trustee directed accounts.
Q:How often may I change my contribution or investment elections?
A: Change frequency and limitations differ from plan to plan and are processed as indicated in the Plan Document.
Q:Can I access my account through an 800 number or the Internet?
A: Yes, if your plan has been set up with these features, you are eligible to choose that option, and you are participating in that option.
Q:What is a Plan Loan?
A: Plan Loan is a loan taken from your Plan account that is secured by your Plan account. In a "Participant Investment directed" Plan, investments are liquidated and charged to you. Accordingly, repayment are credited directly to your account.
Q:How much can I take in a Plan Loan?
A: The loan amount available for any Plan participant is based upon the vested balance in that Plan and whether or not any other loans are currently outstanding. The basic rule of thumb is that the minimum loan amount is $1,000 and the maximum loan amount is the lesser of $50,000 or 50% of the vested balance.
Q:What is the smallest loan I can take?
A: The minimum Plan Loan is $1,000, as mandated by the Federal Department of Labor and/ or the specific plan document.
Q:What is the loan interest rate?
A: The loan interest rate is generally set at one percent above the current Prime Lending Rate, on a non-discriminatory basis, but can vary from Plan to Plan.
Q:How long can I take to repay a Plan Loan?
A: Any loan taken from a Plan must be repaid within 5 years unless that loan was taken for the purchase of a primary residence. If the purpose of the loan is for a primary residence, the term of the loan may be extended.
Q:Are there any fees for taking a loan?
A: This varies from Plan to Plan.
Q:How do I remit payments for a Plan Loan?
A: Loan payments are generally set up as after-tax payroll deductions and remitted to the Plan along with regular payroll deposits.
Q:Where does the interest I pay on a Plan Loan go?
A: Loan interest is deposited into your Plan account along with the principal payment.
Q:Is there any penalty for repaying a loan in full?
A: No. Regular interest would be charged as for a normal payment, unless the entire loan is repaid within 30 days of the origination.
Q:How can I access the money in Plan Account?
A: Plans may provide for In Service Withdrawals. The other possible options are Loans (if available), Hardship Withdrawals (if available), and Termination/Retirement Distributions.
Q:What is a Hardship Withdrawal?
A: Hardship Withdrawal is an in-service withdrawal that can be taken if certain criteria are met. In general terms, you have an immediate and heavy financial need for funds, that no other funds are available, and you must exhaust your Plan's loan provisions (if applicable), in order to qualify for a Hardship Withdrawal.
Q:When am I eligible for a Termination or Retirement Distribution?
A: Generally, you are eligible for these types of distribution when you terminate your employment with the Plan Sponsor or you reach Retirement age, as defined within the Plan.
Q:Are there any penalties for taking a Hardship Withdrawal?
A: Yes. A Hardship Withdrawal is a taxable distribution and you will be responsible for income tax and a 10% early withdrawal penalty when filing your taxes for the year in which the distribution was taken.
Q:How much can I take in a Hardship Withdrawal?
A: Generally, the amount available for withdrawal is limited by the documented need and the total you have contributed to the Plan in 401(k) Salary Savings (pre-tax) contributions, After-tax voluntary contributions, or Rollover contributions. Dependent upon the specific provisions of your Plan, earnings on your contributions and Employer contributions plus associated earnings may not be available for withdrawal.