Sizing Up Your Companys 401(k) Plan

While there is no typical 401(k) plan, surveys have identified some key features that many plans have in common, including eligibility, contribution matching, investment options and withdrawals. Here are some questions employers and employees can use to evaluate their plans, along with some benchmark statistics from a survey of 401(k) plan sponsors.

ELIGIBILITY
What is the waiting period before new employees can enroll in the plan?
Survey results: Waiting periods ranged from 1 to 12 months; 58% required employees to wait 12 months.

Does the plan allow all employeessalaried, hourly, union and part-timeto participate?

Survey results: 97% covered salaried employees; 85% covered hourly employees; 69% allowed part-time employees to participate (sometimes in a separate plan); 55% of union employees participated in a separate plan.

Does the plan permit rollovers from other qualified retirement plans, such as those of previous employers?

Survey results: 93% accepted rolloversalmost all (92%) without a waiting period.

EMPLOYER MATCHING CONTRIBUTIONS

Does the employer match employee contributions to the plan?

Survey results: 88% made matching contributions.

How are employer contributions determined?

Survey results: The most common formula was fixed amount per dollar up to a maximum percentage of salary (63%). The most common match was $0.50 per dollar contributed (51%). The most common matching percentage was up to 5% of salary (42%).

VESTING

How long must employees wait before they are fully vested in employer contributions?

Survey results: 26% had immediate vesting; 24%, however, had to wait five years before becoming fully vested.

INVESTMENT OPTIONS
How many investment options are available for participants to chose from?

Survey results: 96% reported having four or more options.

How frequently can employees change their investment elections?

Survey results: 58% allowed changes every pay period (up from only 4% in 1989).

LOANS AND WITHDRAWALS
Does the plan permit participant loans?
Survey results: 86% had loan provisions, with 77% requiring a minimum loan amount of $1,000 or more.

Does the plan allow hardship withdrawals? If so, under what circumstances?

Survey results: 93% permit hardship withdrawals. Medical expenses, purchase or retention of a principal residence and college tuition are the most common hardships.

RECORDKEEPING
Does the plan sponsor offer a voice-response system that allows participants to get information on account balances and make changes in investment options?
Survey results: 84% used voice-response systems (up from 35% in 1993).

Adapted form 401(k) Plans: Survey Report on Plan Design — 1197, Buck Consultants, Secaucus, New Jersey; www.buckconsultants.com

©1998 AICPA