The Vargo Company
The Vargo Company
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     Census Instructions
     Client Notices
     PPA Notice
     Access Instructions

  We are a third party
  Administrator for the
  following companies:

    

    

    

    


    

    

    

    

    

    

    

    

FAQ's (Frequently Asked Questions by Clients and Financial Advisors):

• What is a 401(k) plan?
• Why should I join a 401(k) plan?
• When am I eligible to participate in the plan?
• What investment options are available for me?
When can I receive my 401(k) monies?
• In what form can I take my distribution?
• What forms are required to initiate the distribution process?
• What is discrimination testing in a 401(k) plan?
• Do 401(k) plans file tax returns?
• How do I set up a new 401(k) plan?


What is a 401(k) plan?

A 401(k) plan is a qualified retirement plan that allows employees to make tax-deductible contributions to a plan, subject to certain government regulation. Its name is taken from the Internal Revenue Code section describing this type of plan.

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Why should I join a 401(k) plan?
While most pension plans are designed for the future, allowing you to invest now to ensure financial security later, a 401(k) plan provides benefits now and in the future. The employees pay no current income tax on amounts contributed on their behalf and the earnings on the contributions are also tax deferred, permitting the tax-free accumulation of income and gains on investments.

For an employee, a 401(k) plan provides:

Reduced Personal Income Taxes: Through salary reduction, an employee may elect to defer up to 100% of pay each year. Since your gross pay is reduced, you do not pay Federal Taxes on your contribution.

Tax Deferred Growth of Contributions: All contributions are invested and grow tax-free until time of withdrawal.

Flexibility of Amounts to be Deferred:
Depending on financial needs, employees can raise or lower the amount deferred, within limits.

Loans
:
May be made available through the Plan. Interest and principal are repaid to your own account balance through payroll deduction.

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When am I eligible to participate in the plan?

Each 401(k) plan sets up certain rules concerning who can participate in the plan. The law allows plans to restrict eligibility to people over 21 years of age and people who have worked at the company more than a certain length of time, generally one year. An eligible employee must complete an Enrollment Form and Salary Savings Agreement indicating the percentage of pay to be withheld and an Investment Direction Form indicating how those monies are to be invested.

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What investment options are available for me?

Unlike other retirement plans, a 401(k) plan often allows the participants to make their own investment selections and to be as aggressive or conservative as they wish. The company selects investments, usually from one financial institution, and then allows participants to select from those investments.

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When can I receive my 401(k) monies?

A participant may receive a distribution from the plan upon Normal Retirement Age or if he or she becomes disabled. If an employee dies, the designated beneficiary or estate receives the money. In cases of termination for other than death, disability or retirement, benefits will be paid as soon as administratively feasible according to the plan guidelines.

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In what form can I take my distribution?

An employee can take 401(k) monies in cash, or roll the monies into an IRA or another qualified retirement plan. If an employee elects to receive his monies in cash, the IRS will automatically withhold 20% for taxes. In addition, the employee may be subject to a 10% penalty tax on his tax return if the distribution is prior to age 59-1/2.

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What forms are required by the terminated participant to initiate the distribution process?

The Distribution Form must be completed for all distributions. The Direct Transfer Form is also required if transferring your vested account balance to an IRA or another Qualified Plan. If your vested account balance is in excess of $5,000, you MUST complete the "Spousal Consent" or "Participants Certification, If No Spouse" section of the Distribution Form and have your signature(s) notarized.

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What is discrimination testing in a 401(k) plan?

The government requires that your plan be tested at least annually to ensure that your plan does not discriminate in favor of highly compensated employees (HCEs). If your plan does not pass these tests, you must either make additional contributions on behalf of non-HCEs, or your HCEs must withdraw some of their contributions.

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Do 401(k) plans file tax returns?

401(k) plans are required to file annual reports known as 5500s. There are different types of 5500s depending on the plan's size.

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How do I set up a new 401(k) plan?

Call us at (877) 253-4015 and we will give you a proposal of services. If this meets with your approval, you would authorize us to proceed. We will then get more complete information and prepare your 401(k) plan documents and supporting material for your signature.

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The Vargo Company, 4932 Iroquois Avenue, Erie, Pennsylvania 16511, (814) 897-1180