The IRC §401(k) plan has become the most popular vehicle for retirement saving in the United States, representing a significant opportunity for employees to provide for their own retirement needs. These materials provide a basic overview of IRC §401(k) plans: the advantages and costs of offering such plans, the types of contributions that can be made, the basic rules and limits on those contributions, and special rules for Roth contributions. It also discusses the basic qualification requirements, nondiscrimination rules, and IRC §401(k) design considerations.

Chapter 1 provides an overview of cash or deferred arrangements under IRC §401(k).

Chapter 2 examines the coverage and nondiscrimination requirements, including the actual deferral percentage (ADP) test, alternative methods for meeting the ADP test, the actual contribution percentage (ACP) test, and the top-heavy rules.

Chapter 3 explores the benefits, limitations, and rules that apply to qualified automatic contribution arrangements (QACA), which permit automatic enrollment for employees. Qualified default investment alternatives (QDIAs) that can relieve the plan's potential liability for making investment decisions when a participant fails to do so are also explained.

Chapter 4 covers the tax consequences to the employer and the employee for maintaining and participating in an IRC §401(k) plan and explains the Roth 401(k) provisions.

The Appendix (Glossary) defines the most frequently used terms.

Use of Materials

Audio or DVD

We recommend that you begin by watching the DVD segment or listening to the audio CD for the chapter before reading the text. You may wish to make notes of the most important concepts and any terms that are new to you. Next, review the learning objectives at the beginning of the chapter and read the chapter. Be sure to work through each of the examples. It may be helpful to highlight important material and/or to make additional notes. Next, complete the study questions at the end of the chapter and review the answers. If you answer a study question incorrectly, review the section of the text that is indicated at the end of the explanation to the study question to make certain you understand the material. Review the learning objectives once more to consider achievement of the objectives. After you have finished watching the DVD or listening to the CDs and reading the text, you may wish to review your notes and any sections of the text or DVD that were difficult. When you are ready, complete the quizzer. Reviewing your notes periodically will increase retention of the material.

Online

Follow the procedures discussed above. After you have studied each chapter, click on the link at the left to complete the interactive study questions. When you have finished reading the text, you may wish to review your notes and any sections that were difficult. When you are ready, click on the link to the left to complete the quizzer. Your CPE certificate will be provided immediately upon successful completion of the quizzer.

Software

Follow the procedures discussed above. As you study each chapter, complete the interactive study questions that appear in the lower panel of the screen. When you have finished reading the text and working through the study questions, you may wish to review your notes and any sections that were difficult. When you are ready, click on the link at the far left to complete the quizzer. Email your quizzer statistics using the quizzer submission link in the software and your CPE certificate will be mailed to you.

Helpful Guidance

Throughout this publication, the user will find explanations and discussions regarding some of the issues that often face practitioners. In order to enhance the user's comprehension of the material and highlight important practical considerations, this publication includes the following designations:

A Biskpoint presents analysis or commentary that attempts to explain or clarify statutory or regulatory authority or decisions by the judiciary.

A Bisktip provides practical advice that may be used to help improve client service or service to the practitioner's organization.

If you have questions regarding content, please contact us at question@bisk.com. Questions regarding customer service or technical support should be directed to bisk@bisk.com.

• Explain what a qualified cash or deferred arrangement is, how such an arrangement permits an employee to defer compensation, and the benefits and issues that must be considered when adopting or maintaining a plan with an IRC §401(k) feature

• Describe the Department of Labor and Internal Revenue Code provisions that impose fiduciary duties on the employer, including requirements to transfer employee contributions to the plan's trust on a timely basis

• Explain the coverage and nondiscrimination requirements that apply to an IRC §401(k) arrangement and the impact of the various correction methods that can be used to satisfy these requirements

• Calculate the coverage test, the ADP and ACP tests, and the test for a top-heavy plan

• Discuss the benefits and costs of a qualified automatic contribution arrangement (QACA) and eligible automatic contribution arrangement (EACA), and how qualified default investment alternatives (QDIAs) reduce fiduciary liability

• Explain the tax consequences to the employer that provides an IRC §401(k) plan and its employees, including the treatment of traditional and Roth contributions and distributions

Mr. Smith continues to educate other professionals, both within and outside of the legal sector and has done so for the past 25 years. He has presented seminars and given speeches in most of the states to many diverse types of professional groups, including the American Institute of Certified Public Accountants, more than 30 different state societies of CPAs, the National Tax Institute, The University of Denver, Western Pension & Benefits Conference, America Society of Pension Professionals and Actuaries (ASPPA), IACEBS, the Golden Gate Chapter of the California Society of Enrolled Agents, the College for Financial Planning, Financial Planners Association, banking and insurance organizations, and others. In addition to his seminars, Mr. Smith has written numerous articles and course materials in his area of practice. 

Mr. Smith has been selected to "The Best Lawyers in America," "Who's Who in American Law," and "Who's Who in American Education." He is a member of the American Bar Association, the Colorado Bar Association, and the Denver Bar Association. Mr. Smith is admitted to practice before the Colorado Supreme Court, the United States District Court for the District of Colorado, the United States Tax Court, the Tenth Circuit U.S. Court of Appeals and the Seventh Circuit U.S. Court of Appeals. (Author/Speaker)

Mr. Smith in preparing these materials is not rendering legal or tax advice, and is not establishing an attorney-client relationship with the reader or listener.  This information is not intended to be either specific or general advice, and you should contact an attorney experienced in the field before proceeding with any plan or action. 

Irene Gallagher, JD, is a partner at Holme Roberts & Owens, LLP, where she practices in the Compensation and Benefits Practice Group. Ms. Gallagher advises employers on all planning and compliance aspects of their programs, including matters affecting tax-qualified retirement plans (such as IRC §401(k) plans, ESOPs, cash balance pension plans and other designs), executive compensation plans (including incentive plans, nonqualified deferral arrangements and omnibus equity plans for both corporate and partnership structures), and welfare benefit plans. She also represents buyers and sellers in the employee benefits and executive compensation aspects of merger, acquisition, and reorganization transactions. Ms. Gallagher has extensive experience in representing her clients before government regulatory agencies, including the IRS and the Department of Labor.

Ms. Gallagher currently serves as the President-Elect of the Denver Chapter of Western Pension & Benefits Conference and Co-Chair for the Los Angeles Benefits Conference. She is a frequent speaker on employee benefit matters, particularly in the area of executive compensation and legislative and regulatory developments. (Speaker)