Comments on: Not All 401(k) Plans Are The Same – Five Issues Everyone Should Know

By: Need advise

Need advise — Sun, 20 Jul 2008 14:22:10 +0000

Teri,
My unions Annuity(401k) has a person wait an entire year of no employer contribuitions before I can transfer the money out of the unions annuity plan and into some investment or bank 401k plan of my liking. Is this legal? Why do I have to wait one full year? Thanks for your help..

By: Moolanomy weekly roundup #4: �Retirement

Moolanomy weekly roundup #4: �Retirement — Sun, 19 Aug 2007 15:01:40 +0000

[...] that you know how you are doing against other people in your office, do you know that not all 401(k) plans are the same? Personal Finance Advice gives us five issues everyone should [...]

By: Teri

Teri — Wed, 11 Jul 2007 20:48:09 +0000

Yes-

PensionGeek nailed it on the head. I work with mostly small employers and they usually only let you enroll every 6 months. So it indeed could be worse. Waiting an additional 3 months for an entry date is quite common and within the law.

By: PensionGeek

PensionGeek — Wed, 11 Jul 2007 16:01:52 +0000

The longest you can be required to wait before making 401(k) deferrals is 18 months. It is common for employers to have a one year waiting period (eligibility) and a quarterly enrollment time (entry). I know there are some code sections that deal with this, but it should also be in the plan document as well. The eligibility and entry issues differ widely among plans, so they’re two of the many things I look up for every one of my clients, even if I’ve worked with them for years. The selection of entry dates has many functions in plan design, including determining who might be included in a nondiscrimination test, who might get a safe harbor contribution, who gets a match, etc. (There are always exceptions, however, so I may have to refer to many parts of the document to answer one or two questions.)

By: Bob

Bob — Wed, 11 Jul 2007 13:50:00 +0000

I am more confused, I am afraid, after reading this article and its comments than when I started researching!

Would I be able to impose on one of you experts to explain the “one year maximum” waiting period? How does one find the relevant law?

My employer has a 12 month waiting period, which I recently completed, only to find this concept of enrollment periods. I now have to wait an additional three months. It initially struck me as unfair — Lucy pulling the football away — but now I have been asked to research its permissibility.

Any guidance much appreciated.

Thanks.

By: Teri

Teri — Thu, 28 Jun 2007 13:10:14 +0000

One more comment – I think my vesting point was maybe not explained well. My point was that you earn the money gradually. I apologize for any confusion. It was not my attempt to describe a cliff vesting schedule. That is not what I meant. A cliff vesting schedule would mean you do not see a certain percentage until you have been in the plan for a specified period of time. My point was to say you vest a little each year. Sorry if that was not clear.

By: Teri

Teri — Thu, 28 Jun 2007 12:56:00 +0000

Oh gosh I have been so busy I just saw this.

Actually these are all things mostly I have seen, and I think I said in my first paragraph this stuff is greek to me. I try to shed some light on these things and I certainly appreciated the experienced people coming in to explain better/clarify, so thank you. 401(ks) are NOT my business I already said.

“5 year cliff vesting schedule” – maybe I did not explain it well but I do not see anything illegal in my example – quite common. 10 years not legal – maybe – but I was just showing as an example to pay attention to the vest – thanks for the heads up.

I understand per-paycheck matching fine but from my experience it leads to errors and fixes later (mostly small business not equipped to deal with it). As accountants we clean up the mess after year-end. You employer can match you each paycheck, but doesn’t mean there won’t be some corrections after year-end (there may well be).

Reading your Summary Pan Description is excellent advice.

Entrance dates – Joyce – this is why this is greek to me. So I should have said January 3? My point is this can be an issue – waiting 6 months longer than you expected. But certainly thanks for the clarifications!

Safe Harbor – I know this is not technically a “match” – it is an employer contribution so was just trying to make it easy to understand for average joe blow. I apologize for the wrong use of term. I think to joe blow average money from a boss is a “match” though obviously it is not matching anything you contribute specifically. Sorry for the confusion though. I regret using the term.

I’m not sure where the confusion with the 3% safe harbor match comes from, unless you just mean the use of terms. It is very common – I should have said 3% contribution. Thank you Joyce too for adding more on those.

By: PensionGeek

PensionGeek — Wed, 27 Jun 2007 17:07:32 +0000

I have no idea about governmental plans, such as mentioned by Ryan. Ryan, just so you know, governmental plans operate under vastly different rules than the 401(k) plans the writer discussed — which absoutely, positively do not allow more than a six-year graded schedule following passage of the Pension Protection Act last year.

By: Ryan

Ryan — Wed, 27 Jun 2007 16:02:21 +0000

10 year vesting does still exist.. I work for the State Government and our retirement plan takes 10 years to get the employer contribution

just FYI for all those saying that its illegal or doesnt exist anymore.

By: Actuary With A Pony Tail

Actuary With A Pony Tail — Tue, 26 Jun 2007 19:43:45 +0000

It’s been a really long time since I’ve read an article with so many factual errors. 10 year vesting? A safe harbor match of 3%? Is this author from the USA? The main point of the article, that 401(k) plans are not all the same, should be seen as a positive: employers have design flexibility, which will encourage more employers to set up plans and provide a higher level of benefits for employees.