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FAQ:
Frequently asked questions by participants to plan
sponsors |
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Below,
we hope to answer some of the most commonly asked
questions in regards to retirement plans. While these
answers are very broad, you can always find more plan
specific answers in the Summary Plan Description which
can be located upon logging into the portal. You can
always contact us as well to answer any questions
you may have |
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Q:
What is the benefit of participating in a 401(k) plan? |
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A:
A 401(k) plan allows you to make pre-tax contributions
via salary deductions in order to invest and save
for retirement. The tax is deferred until you choose
to take a cash distribution from the plan. If your
plan allows it, you may also be able to designate
a portion of your salary deductions as ROTH contributions.
These are deducted on an after tax basis and therefore
may be withdrawn tax free given certain requirements
have been met. Some plans also offer an employer funded
match on an individual’s 401(k) contribution
to encourage participation. The match would typically
be determined by a percentage based formula written
into the plan document. |
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Q:
What is the maximum amount a participant may contribute
to a 401(k) plan? |
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A:
The maximum 401(k) Deferral limits change on an annual
basis and are set by the IRS. For 2009, the maximum
401(k) limit is $16,500. This is a limit that is comprehensive
of all salary reductions in a tax year regardless
of if the individual is a participant in more than
one plan throughout the year. The limit is also a
combination of pre-tax and ROTH contributions. If
you are 50 years of age or older, you may contribute
an additional $5,500 (for 2009 also subject to change
on an annual basis). |
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Q:
What does the term “vesting” refer to? |
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A:
Vesting essentially refers to an employee’s
ownership in certain assets in the plan. Typically,
Employer Contributions (i.e. Matching contributions
or Profit Sharing Contributions) are subject to “vesting
schedules” based on years of service with the
Employer. You are always 100% vested in any money
you contribute to the plan. Your vesting will either
increase gradually per year of service (maximum 6
years of service for full vesting) or you will be
0% vested until a service requirement is met (maximum
3 years for full vesting). Your quarterly statement
will have your vesting percentage listed. Please refer
to the Summary Plan Description for specific information
regarding vesting for your plan. |
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Q:
Can I withdraw the money from my retirement account
at any time? |
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A:
No, you may not withdraw money from the plan at any
time. In order to take a full distribution of your
account, a distributable event must have occurred.
Distributable events are listed in your document and
typically are as follows: Termination of employment,
retirement, disability, or death. Only if one of these
has occurred may you take a full distribution of your
account. |
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Q:
If I have terminated employment, how do I go about
requesting a distribution from
the plan? |
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A:
First and foremost, you must decide if you would like
to take a cash distribution or rollover your account
balance to a new plan or IRA. If you request a full
cash distribution and are under the age of 59 1/2,
you will be charged a 10% penalty tax for early withdrawal.
You will also have to pay federal income tax on your
cash distribution regardless of your age. To avoid
taxes and penalties, you may also request a rollover
of your assets to a plan with a new employer or an
IRA. You will need to make sure you obtain account
information for the rollover prior to requesting a
distribution. You may also choose to combine the options
taking a partial cash distribution and rolling the
remaining balance into an IRA or another qualified
plan. Once you have decided what to do with your account
balance, you will need to complete a distribution
request form for the financial institution where your
retirement assets are invested. You can locate these
forms by going to commonly
used forms. Once the form has been completed,
you will need to send it to your former employer to
sign. Your employer will then send the form to us
for processing. Once we receive the form, it can take
5-10 business days for you to receive the money. |
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Q:
May I withdraw money from the plan if I have not incurred
a distributable event? |
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A:
If the plan allows, there are several options available
for partially withdrawing money prior to a distributable
event. Individuals age 59 ½ and over may request
an in-service distribution of their funds. Some plans
might only allow in-service distributions of employee
deferrals until retirement age while others may allow
distributions from all sources. It is best to check
with your Employer. If you do request an in-service
distribution, your account will not be closed; it
will remain open for future Employer contributions
until a distributable event occurs. In order to request
an in-service distribution, you will need to complete
a distribution form (go to commonly used forms to
access) and send to your employer for approval and
signature. Your employer will then send the form to
us for processing. Please note that upon our receipt,
it will take 5-10 business days for you to receive
your money. |
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Q:
How do I withdraw from the plan if I am not age 59
½ or older? |
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A:
If the plan permits, you may take a loan from the
plan. The minimum allowable loan is $1,000 and the
maximum is $50,000. You also may only borrow 50% of
your vested account balance at any time.Therefore,
if your plan allows multiple loans, you may never
have more than 50% of your vested account balance
outstanding in loans. If you would like help calculating
your available loan, please feel free to contact us.
Loan applicants should complete a loan request form
and the promissory note and irrevocable pledge prior
to requesting a loan. These can be found in commonly
used forms. You will provide these to your
employer for signature. Once signed, the paperwork
will be sent to us for processing. Once we process,
we will create an amortization (payment) schedule
and send it to your employer. You should receive the
money 5-10 business days after we receive the request. |
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Q:
What are the terms of the loan and how is it repaid? |
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A:
Loans are repaid via after-tax salary deductions.
Therefore, the frequency of the payments is typically
aligned with your payroll (weekly, bi-weekly, twice
a month, or monthly). Loans must be repaid within
5 years unless you are purchasing a primary place
of residence. In that case, repayment may be extended
to a maximum of 25 years. Interest on the loan is
typically defined in the plan’s loan provision
and is determined by the “prime” rate
of interest. (i.e. Prime +1, or Prime +2) The “prime”
interest rate, as defined by the Wall Street Journal,
is “ the base rate on corporate loans posted
by at least 75% of the nation’s 30 largest banks”.
You may find the current rate and the history of prime
interest rates by clicking here.
If you would like to try and model a loan and see
how much the payment would be, please use our loan
calculator. |
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Q:
What happens if I terminate employment prior to paying
off my loan? |
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A:
The balance of the outstanding loan basically becomes
due upon termination of employment. You can either
pay the balance upon termination or you can have the
balance deemed a taxable distribution for the tax
year in which you terminate employment. If the balance
is deemed a distribution, income and penalty taxes
will apply if you are under the age of 59 ½).
This is because the IRS will see the outstanding loan
amount as a cash distribution from the plan regardless
of if you rollover your account balance. |
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Q:
What can I do if I need to withdraw from the plan
due to financial hardship and my plan
does not allow loans or I have already taken out the
maximum allowable amount? |
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A:
If the plan allows, you may request to take a hardship
distribution. However, there are strict rules in place
regarding hardships. You must have exhausted all other
options for obtaining the money to meet your financial
hardship. Some reasons for needing a hardship distribution
are as follows: your own, your spouse's or your dependent's
medical expenses, expenses in purchasing a principal
residence (excluding mortgage payments), the cost
of tuition and related educational fees for the next
12 months of post-secondary education for yourself
or your spouse or dependents, or to prevent your eviction
or the foreclosure on the mortgage of your principal
residence, home repairs that qualify for casualty deduction
on your principal residence, and funeral expenses
for you, your spouse or dependents. You may not take
more than needed to cover your financial hardship
and you may only withdraw money that you have contributed
to the plan (salary deferrals)—no investment
earnings. In order to help you pull out of financial
hardship, you may not defer to the plan for the six
months following taking a hardship distribution. Appropriate
evidence of hardship is recommended and should be
provided along with the hardship distribution form.
We have a hardship application that we recommend participant
complete prior to requesting a hardship. This can
be found by going to commonly
used forms. All paperwork should be submitted
to your employer for approval. Your employer will
then forward to us for processing. Once again standard
processing time is 5-10 business days though hardships
do get priority and will be moved along faster. |
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