401k Participant FAQs
Participant Frequently Asked Questions
What is an internal management fee?
A fee charged by a mutual fund company to investor to pay the professional fund manager of the investment. These can range from 0.03% to 1.5% of assets held and are deducted automatically from investors’ accounts. Higher management fees do not assure superior fund performance.
What is an index?
A statistical measure of the changes in a portfolio representing a market. The Standard& Poor’s 500 (S&P 500) is the most well-known index, which measures the overall change in the value of the 500 stocks of the largest firms in the U.S.
What is an asset allocation?
A portfolio made up of a wide variety of investments, including domestic and foreign stocks and bonds, government securities, real estate stocks, and money market funds.
What is an equity?
Investments in which the investors obtain a portion of ownership. Real estate and common stock are examples of equities (another word for stock).
What is a money market fund?
A fund investing in safe, highly liquid securities, including bank CDs, commercial paper, U.S. government securities, and repurchase agreements.
What does vesting mean?
Vesting is the earned right to keep the employer funded accounts. Typically vesting is earned with each year of service credited. For example a plan may have a 6 year vesting schedule for match and profit sharing contributions. This would mean that you would need 6 years of credited service to receive a 100% benefit of those balances. Any less than that you would only receive the applicable vested portion upon separation of service. Employee contributions and the earnings received on such contributions are always 100% yours when distributed.
When can I withdraw money out of the plan’s account?
The types of distributions and timing of such distributions are determined on a plan to plan basis. Some plans will allow withdrawals while still employed with the company, while other plans will only allow withdrawals upon termination or retirement. The IRS may also mandate withdrawals under certain conditions.
Can I borrow from my plan?
Loans are an available option within a plan; however, not all employers adopt the loan provision into their plan.
How much will my employer contribute?
There are a couple types of employer contributions: matching contributions (which are dependent on employee deferrals) and profit sharing contributions. The plan document specific to your employer’s plan will define the contribution types available within the plan. Generally the amounts are left to the discretion of the employer and may be limited due to IRS imposed limitations and regulatory testing.
How much can I contribute to my plan?
The Internal Revenue sets contribution limits each year, please see the annual contribution chart on the Resources page. Besides the IRS limits, a plan may impose a more stringent limit that must be followed.
When am I eligible to participate?
Once you meet your plan’s eligibility requirements you would enter the plan on the plan’s established entry dates. Requirements are usually based on your age and years of service but can vary by plan. Entry dates can also vary anywhere from annual entry to immediate admission.
Is my 401(k) account guaranteed?
No, there is no protection against any investment losses you may suffer. However, the plan fiduciaries do supervise and are legally responsible for the operation of the plan and the money within the plan to protect your financial interests. Their responsibilities include choosing and monitoring reputable and competent service providers.
What is a 401(k) Plan?
You may be surprised to learn that a 401(k) plan is not a plan at all. It is an add-on feature of a profit sharing plan, allowing a participant to make contributions through payroll deduction. The creation of this feature is found in section 401(k) of the IRS code, hence the name given to this provision.