Question and Answers about VIMCOR’s 401k plans:

What is a 401(k) Plan?

A 401(k) Plan is an employer sponsored retirement program allowed under Section 401(k) of the Internal Revenue Code (IRC). Generally, under this type of program, employees are provided with the opportunity to defer part of their salary on a pre-tax basis. At times, these arrangements also allow for different forms of employer contributions that are used to supplement employee savings for retirement.

 Why do employers adopt 401(k) Plans?

Employers may have several reasons for adopting 401(k) Plans. Some reasons relate to human resource issues, such as attracting and retaining employees. Other reasons may include tax issues, such as the deduction employers may be entitled to take on the contributions they make to the plan. Employers may also want to assist their employees in securing a financial plan for retirement.

 What are the benefits of a 401(k) plan versus other retirement plans?

In general, 401(k) plans can be suitable for companies with any employees. In comparison to other retirement plans, 401(k) plans can offer the following benefits: higher contribution limits contributions on a pre-tax basis (up to the annual IRS limit) vesting schedules for employer contributions pre-retirement access to account assets through loans In order to offer these features, 401(k) plan sponsors must follow certain legal and administrative guidelines.

 How many funds are available to the plan?

The plan sponsor (the employer) may select a total of 10-12 funds from over 45 different available funds to be in the plan. VIMCOR will assist in this selection and will create model portfolios from the selection so that employees may invest in Growth, Balanced, or Income attributes utilizing the 401k plan.  In addition, the administrator also monitors these funds and will replace under performing funds with funds of similar attributes.

 Below is a list of funds that are available:

Where is the employee’s money held?  Is it secure?

All employee money is held in trust by TD Waterhouse Institutional Services.  Waterhouse is insured by SIPC.  Only the Administrator can authorize deposits, withdrawals, and the payment of fees.  Only the employees may authorize changes to their investment portfolios.

 Where do my employees go to have their questions answered?

You and your can contact either the administrator’s 24-hour access lines, or VIMCOR.  VIMCOR will answer questions about the mutual funds in the account, asset allocation questions, and will assist in designing optimal portfolios for each employee given that employees circumstances.

What are the tax advantages?

Participants in your 401(k) plan can reduce their current federal and, in most cases, state and local taxes by making contributions on a pre-tax basis. Account assets can grow tax-deferred until withdrawn, which can help participants accumulate substantially more than they would in a comparable taxable investment. In addition, any contributions your company makes to your employees' accounts are generally tax deductible as a business expense.

 How much does it cost to set up a plan?

Traditional 401(k) Plans can cost as much as $5,000/year in administrative fees, for even the smallest employer. But with we have been able to change the dynamics of this business to cut costs and derive revenues from alternative sources (i.e. advertising). This enables us to offer 401(k) Plans to employers without the traditional administrative fees.

Compliance - we provide the complete array of tax filings and statutory disclosures, as well as an additional level of services previously only available to the largest employers.

Investments - we provide no-load access to virtually unlimited investment options, including thousands of the country's top performing mutual funds, as well as individual self-directed brokerage accounts for every participant.

Education & Advice - we perform as a co-fiduciary to your company's plan and provide both employee education as well as participant specific advice.

What is unique about our Plans?

We are the only bundled 401(k) provider that performs as a Co-Fiduciary to every plan.

Traditionally fiduciaries to qualified plans (i.e. owners and executive staff) have had to handle their fiduciary mandates that govern the way plans are supposed to be run by themselves (and faced stiff penalties for inadvertently running awry of these mandates). But as a Co-Fiduciary, the administrator guarantees that your plan is set-up, maintained and run correctly, because we have the same liability if it is not.

So unlike Fidelity, Merrill Lynch and Charles Schwab - we put our money where our mouth is! We stand by our clients as a Co-Fiduciary, and guarantee that your plan is run in compliance with ERISA and its fiduciary duties. (Including the standard provision of participant specific investment advice and employer compliance services.)

Convenient – Your account is online and available 24-hours-a-day, seven days a week. So employers and employees can access their plan information from anywhere, anytime at their discretion.

Easy - Everything is handled on our site, from plan set-up and employee enrollment through payroll tracking and participant reporting. We can be fully integrate with all major payroll software and provide online real-time assistance to both employers and employees needs.

Secure - The latest encryption technology is used to ensure a safe and secure environment for your personal financial information. We are Verisign certified and TrustGuard endorsed.

Eligibility:

Can an employer exclude employees from participating under a 401(k) Plan?

Generally, all employees must be offered the opportunity to participate in the plan. The employer may set certain age and service requirements that employees must reach before becoming eligible to participate under the plan. (There are minimums and maximums in both categories: Age = not greater than 21, or less than 18; Service = not greater than one year, no minimum.)

Note: Certain groups may be permanently excluded from a plan, provided several Sections of the IRC and other applicable laws are satisfied. Example: Employees covered by Collective Bargaining Agreements or Union Plans.

Must all employees contribute under the 401(k) Plan?

No. While employees who are eligible to participate under the 401(k) Plan must be given the right to participate, they are not obligated to contribute to the plan

Contributions:

How much can an eligible employee contribute to the 401(k) Plan?

An eligible employee may contribute anywhere from 1% to 25% of salary, with an annual pre-tax limit of $10,000. However most employers limit maximum contributions to less than 20%, to afford for discretionary contributions made by the employer at either year-end or as a match.

Note: There are other Sections of the IRC that may further reduce the amount an eligible employee may contribute to the plan.

What types of contributions are allowed?

A 401(k) Plan can accept both pre-tax and after-tax contributions, which may include salary deferrals, commissions, bonuses, and other types of compensation. Most employers allow pre-tax contributions as defined by salary, commissions, and bonuses (i.e. W-2 Income), but it is rare that employers allow after-tax contributions.

 Are any taxes paid on the money contributed by employees?

Yes. Contributions made by employees are treated as wages for purposes of social security and Medicare employment taxes, as well as unemployment taxes. Some states and local municipalities may also include these amounts as wages for tax purposes. However, they are exempt from federal income taxes until distributed to the employee.

 Are Company matching contributions required to be part of a 401(k) Plan?

No, matching contributions are optional. However, many employers elect to incorporate a matching contribution provision in the plan. This is usually done for a variety of reasons, including: to attract and retain employees, to remain competitive with industry standards, to encourage eligible employees to participate under the plan, and/or for tax incentive purposes.

 How can participants get money out of their 401(k) account?

Generally, there are common distribution events offered under most plans -- retirement, separation from service, death and permanent disability. In these situations the participant or the beneficiary may receive distributions from the plan. Many plans also have additional means to receive funds, such as loan provisions, hardship withdrawals and age 59 ½ in-service distributions.

Note: You should be aware, however, that there are restrictions and/or tax consequences for most distributions.

What is a Negative Enrollment Election?

Negative election is a means of enrolling employees in a qualified plan that requires them to elect not to participate, rather than the other way around. This technique is commonly practiced among many of the largest employers in the U.S. and has been deemed acceptable by the U.S. Dept. of Labor.

In addition negative elections can enable Highly Compensated Employees (HCE) of employer-sponsors to contribute more often to their own plan accounts, because it can help enable a plan to pass its non-discrimination tests more easily. But at the end of the day, negative election is a choice made by the employer-sponsor.

What is vesting?

Employees are always entitled to the amounts they contribute under the plan. An employee may also be entitled to all or a portion of any contribution made by the employer. The amount of the employer contribution the employee would be entitled to is dependent upon the vesting schedule provision adopted by the employer. A plan may require the employee to complete a certain number of years of service with the employer before these contributions become fully theirs. Some plans provide for a graduated vesting schedule, so that the employee can earn a right to a portion of their employer contributions as they complete a specified number of years of service.

What is non-discrimination testing?

The IRC requires a series of mathematical tests that ensure that the average percentage of salary contributed by highly compensated employees is not excessive when compared with those contributions made on behalf of the lower paid employees.

How many investment options must be offered under a 401(k) Plan?

Employers may offer as many investments as they deem appropriate. However there are guidelines under Section 404(c) of the Employee Retirement Security Act of 1974, as amended ("ERISA"). These guidelines provide recommendations as to the number and scope of the investment offerings that an employer may choose to make available to plan participants, and require a minimum of three investments with differing risk/return characteristics.

Note: Section 404(c) is a complicated provision of ERISA and contains a variety of provisions that must be met to qualify for its Safe Harbor provisions. Consult your legal counsel for details.

Independent Brokerage Accounts

The employees will also have the option (available soon) to select an independent brokerage account that would be directly managed by VIMCOR.  This option would permit buying of individual equities and foreign investments. 

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