Who is eligible to participate?

(Employer)

Any type of public or private company or non-for-profit organization, except government plans.

(Employee)

The plan may require that employees be at least 21 years old and/or have performed 1 year of service (can be extended to 2 years if contributions are immediately vested).

Who contributes?
How much?

Employers can make matching and/or discretionary contributions. The maximum amount of tax-deductible contributions (employer plus employee) is 25% of eligible compensation of all participants.

Alternatively, employers can make "safe-harbor" matching contributions (100% match up to 3% of compensation, 50% on contributions over 3% but not exceeding 5% of compensation) or discretionary contributions (3% of compensation). "Safe-harbor" contributions are immediately vested and relieve the employer from certain nondiscrimination tests. Additional plan requirements apply.

Employees may elect to make salary reduction contributions based on a percentage of income, subject to Internal Revenue Code limits.

When are contributions vested?

Employer contributions are subject to a vesting schedule provided in the plan document. Employee contributions are 100% vested at the time of contribution.

How can funds be accessed?

The plan may permit employees to take loans and/or withdrawals according to plan provisions. Withdrawals made prior to age 59 ½ may incur automatic tax withholding of 20% plus a 10% early withdrawal penalty, unless a permitted exception applies.*
Tax-free rollovers are permitted to an IRA or qualified retirement plan.

What special administrative requirements are associated with the plan?

Nondiscrimination testing is required unless "safe-harbor" contributions (see above) are made. "Top-heavy" testing is required, along with Form 5500 and ERISA disclosure.