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Plan Types

401(k) Plan

This information is general in nature and may be subject to change. Neither AIG VALIC nor any of its agents give legal or tax advice. Applicable laws and regulations are complex and subject to change. For legal or tax advice concerning your situation, you should consult your attorney or tax advisor.

Type of employer? All non-governmental employers and grandfathered state and local government employers if plan was adopted before May 5, 1986.

ERISA-covered? Yes, unless governmental or non-electing church organization. ERISA imposes specific requirements including annual reports to the IRS; written plan documents; summary plan descriptions for participants; joint and survivor benefits; spousal consent; and beneficiary obligations.

Initial filing with the IRS? Yes, unless a standardized prototype plan document is used, in which case the plan sponsor can rely on the prototype sponsor's opinion letter from IRS.

Filing fees? IRS fees vary, based on type of filing. However, filing is not necessary if sponsor uses a standardized prototype plan document.

Annual reporting to IRS? Yes, if subject to ERISA.

Nondiscrimination coverage rules? Yes, for non-governmental tax-exempt and for-profit organizations.

Trustee required? Yes, unless the plan is funded with a qualifying annuity contract.

Plan-to-plan transfers? Yes, to other qualified plans.

Rollovers? Yes, to any eligible retirement plan or IRA, subject to receiving plan limitations.

Permitted investments? A broad range of investment alternatives including annuity contracts and mutual funds.

Loan provisions? Yes, if permitted by plan. Subject to Internal Revenue Code (IRC) and/or ERISA limitations.

Eligibility requirements?

  • Minimum — all employees from date of hire.
  • Maximum — Later of one year of service or age 21. However, if plan provides for immediate vesting of employer contributions, then later of two years of service or age 21 may be required for eligibility for employer contributions.

Eligibility for annual employer contributions? According to years-of-service definition (but could be separate hours requirement or last-day-of-plan-year requirement) in the plan, subject to limitations.

Annual employer contribution amount? Discretionary, as stated in plan document.

Maximum employer tax deduction? 25% of total "grossed up" compensation paid to all participants collectively (usually coordinated with other employer-sponsored plans and applicable only to for-profit organizations).

Maximum employer and employee contributions? Combined employer and employee contributions may not exceed 100% of the employee's compensation up to a maximum of $45,000 (2007); may be coordinated with other employer-sponsored plans.

Maximum employee contributions? Each eligible employee may contribute up to $15,500 in 2007 provided combined employer and employee contributions do not exceed the lesser of 100% of compensation or $45,000 (indexed for 2007).

Vesting?

  • Employee's contributions are vested 100% immediately.
  • Employer matching contributions are vested according to employer's vesting schedule as permitted by IRC and, if applicable, ERISA.

Integration with Social Security? Allowed (profit-sharing contributions only).

Distributions to employee? Determined by plan provisions, including the employee's vesting percentage, and applicable tax laws. However, minimum distributions are required at age 70½ or retirement, whichever is later. Employee pre-tax contributions cannot be distributed prior to age 59½, death, disability, retirement, separation from service, or hardship (if plan allows).

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Last Updated: 1/26/2007