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...
- 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
- 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
- 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.
- 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.
- 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.
- “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.” –
- “So we do get a lot of calls from participants, and of course,
as I mentioned, each plan is a little different.” - Andy Bush