Throughout the material on employee and business concerns with respect to 401k plans, what has been presented is a variety of situations, concerns, financial analysis and emotional information.
The term 401k is a specific retirement program. Other programs such as SEP and SIMPLE IRAs have similar characteristcs. In the course of this section, while the term 401k will be used, it refers to company sponsored retirement programs
The combined effect of this material is for one to understand that a 401k, while attractive. is not necessarily one's best choice with respect to retirement planning.
The remainder of this section will provide information on an alternative to a 401k program.
What is the 401k alternative? aka - Lifetime Savings Account (LSA)
The Lifetime Savings Account (LSA) employs a strategy which differs in many ways from 401k retirement programs.
These differences can be sorted into 3 main areas:
- Governance & Compliance (i.e. Federal regulations) - 9 items
- Employee Impact - 8 items
- Company Impact - 10 items
Through a series of documents and illustrations, all 27 items of impact will be presented.
Some of the relatively self-explanatory requirements are:
- The DOL can audit a plan
- ERISA sets penalties for early access to retirement funds
- ERISA established loan requirements
- ERISA requires minimum employee training
What's a DOL Audit?
As a business owner, you're obligated to operate your company within certain parameters set by the US DOL as well as other Federal entities.
If an employee within your company files a complaint, then an audit of the benefits your offer could be triggered. This could also happen if your 5500 filing, which reports on the financial health of your company's benefit plans, contains discrepancies that might require a second look.
The DOL & ERISA set the following:
- Annual employee contribution limit
- Contribute annually, no carryover of underfunded contributions - i.e. - Fund it or Lose It.
- When deferrals have to be submitted to retirement plan
- Company deferral match to satisfy equitable for all participants