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Advisors of Horizon are Registered Representatives of Cetera Advisors LLC, a broker/dealer and Registered Investment Adviser.

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  2. What's The Plan, Stan?

Aug 30, 2022

In today’s episode of the “Inside the Plan with the 401(k) Brothers”, host Bill Bush and Andy Bush, advisors at Horizon Financial Group talk about the Summary Plan Description of a 401(k) plan. Every participant should have a copy, and each plan's is unique....but what does it include? What's the Plan, Stan? The 401(k) Bros. break it down for you...

 

Episode Highlights

  • 02:40 – First of all, they talk about who's eligible for the plan and what is Summary Plan Description.
  • 4:45 – The Summary Plan Description answers all the questions that you might have in your mind and you can then go to the page that would correspond with the answer to that question.
  • 06:25 - Article three of the Summary Plan Description gets into employer contributions.
  • 08:45 - Some companies will do a Stretch Match where they're kind of stretching you out to make you put in more of your dollars, which is smart because ultimately it's your responsibility of saving for retirement.
  • 10:00 - The other thing that is important to check out in the Summary Plan Description is whether you will share in that employer contribution if you leave during the year.
  • 11:50 - If your plan is a Safe Harbor Plan, you are 100% invested in any safe harbor contributions that the employer makes as soon as it hits your account.
  • 14:20 - There's a list of different hardships, you've got to be eligible for the hardship, you can't just claim that saying that you went through hardship.
  • 16:00 – Bill says they have the plan documents on file with them. They can look it up sometimes, it takes a little while to get into the provision, but just use it as a resource.

 

 

Three Key Points

  1. In all of the plans that they service they take what's the plan document or the adoption agreement which has all the features of the plan. Then they kind of boil that down into 8 to 12 different points that the participant needs to know about the most often asked questions about the plan like when can I get in or get out to the plan. So, every plan has what's called the ‘Summary Plan Description’ which should be available for all participants. They can request it from their HR person or whoever's kind of responsible one in their group for keeping those documents.
  2. This is important to understand how is the employer going to contribute to your account, is it through Safe Harbor Non-Elective? If you don't put any dollars on your own, the employer is going to put in money for you that's a non-elective, it could be a Safe Harbor Match. This means for whatever percentage of your income you’re putting into your employer is going to match some percentage of that. So it could be $1 for a dollar up to a certain percentage. So in other words, some are $1 for a dollar for the first 4% others may match your dollar-for-dollar for the first 3%. But then for the next two, they’re only going to do half a percent of 50 cents on the dollar. So, those are Safe Harbor Matches.
  3. The other way an employer could contribute is called a Profit Sharing Match or a Profit Sharing Contribution. Profit Sharing Contribution is something that is distributed to anybody, and everybody that is eligible, whether they participate or not, and there is a vesting schedule or ownership schedule on that. That is another way how the employer contributes. Make sure you know that because there could be some strategies involved.

 

 

Tweetable Quotes

  • “We kind of boil it down to help the participants, especially the new participants in the plan” – Bill Bush
  • “So often, you will see on the eligibility side, maybe it's 21 years of age and one year of service.” Andy Bush
  • “We find now that about 75 to 80% of the plans do contain the Roth provision.” - Andy Bush
  • “We've seen some that are a little difficult for people to figure out because it's a very weird formula.” - Bill Bush
  • “So the other thing that the summary plan description will entail or spell out is the vesting schedule.” – Bill Bush
  • “Article Six, and this is the one you're going to like its distributions prior to termination is hardship distributions.” – Andy Bush
  • “So we do get a lot of calls from participants, and of course, as I mentioned, each plan is a little different.” - Andy Bush

 

Resources Mentioned