This document provides an overview of 401k retirement plans, including what they are, why they were established, and how they work. It discusses the main types of 401k plans including traditional, Roth, safe harbor, and SIMPLE plans. It also outlines important factors to consider when choosing a 401k plan for a business, such as administrative costs, annual rates of return, available investment options, enrollment procedures, employee training, customer service, and investment advising capabilities.

1. BUSINESS.COM GUIDE TO 401K PLANS

2. CONTENTS
OVERVIEW OF 401K PLANS 3
TYPES OF PLANS 6
CHOOSING A PLAN 8
CALCULATING COSTS 10
PURCHASING TIPS 12
COMPARISON CHECKLIST 13
GLOSSARY OF TERMS 15

3. 3
WHAT
The 401(k) plan takes its name from the U.S. Internal
Revenue Service Code, where section 401(k) allows
businesses to establish tax-favored retirement savings
accounts for their employees. 401(k) plans have grown
to become a major source of retirement savings due
to their unique benefits. About one-quarter of all
retirement savings in the U.S. are held in 401(k) plans.
The 401 (k) plan is just one of many alternative ways
the U.S. government provides for tax-favored savings
for retirement. 401(k) plans differ from Individual
Retirement Accounts (IRAs) in that IRAs are usually
held by individuals-as the name suggests-rather than
by companies. In 2011, 61% of Americans had a
401(k) or other employer-provided retirement account,
39% had an IRA account, 31% had both an IRA and
a 401(k), and 31% had neither, according to the
Investment Company Institute.
OVERVIEW OF 401K PLANS
“THE 401 (K) PLAN IS JUST ONE OF MANY
ALTERNATIVE WAYS THE U.S. GOVERNMENT PROVIDES
FOR TAX-FAVORED SAVINGS FOR RETIREMENT.”

4. 4
WHY
401(k) plans can only be set up by employers, and
usually involve employers making tax-deferred, direct
contributions to employee retirement accounts.
With IRAs, most if not all of the contributions come
from the employee, who usually has control over
how the funds are invested. With 401 k plans, both
employers and employees usually contribute, and a
custodian provides limited options that employees
can choose between when investing their savings.
The paperwork requirements are also different for
IRAs and 401(k)s. Employers do not have to file
any paperwork with an IRA, other than showing
the amount of compensation directed to the IRA
account on an employee’s W-2 annual summary
wages and deductions. Companies with a 401k
plan must file Form 5500 with the IRS each
year, and must satisfy annual anti-discrimination
testing to ensure that highly compensated
employees are not benefiting in an unbalanced
way from the company’s 401(k) contributions.
“WITH 401 K PLANS, BOTH EMPLOYERS AND
EMPLOYEES USUALLY CONTRIBUTE, AND A
CUSTODIAN PROVIDES LIMITED OPTIONS THAT
EMPLOYEES CAN CHOOSE BETWEEN WHEN
INVESTING THEIR SAVINGS.”

5. 5
HOW
The main benefit of 401(k) plans is their tax-favored
status. Employee contributions are deducted before
taxes are calculated, and earnings on the investment
are also not subject to taxes when earned.The
contributions and the gains are only taxed when
distributed, typically after retirement, and usually at a
lower tax rate. Employer contributions to 401(k) plans
are tax-deductible to the employer.
Many 401(k) plans include some employer matching of
employee contributions to their retirement funds. 401(k)
programs are extremely popular with employees, so much
so that employers offering these plans find it easier to
attract qualified employees. In a recent study by the U.S.
Office of Personnel Management, 91% of employees rated
retirement benefits as a major reason for accepting or
continuing employment-more than any other benefit-even
including health-care coverage (89%)!
“FREQUENTLY, PARTICULARLY IN LARGER
COMPANIES, A CMMS IS A MODULE OR INTEGRATED
PACKAGE OF A LARGER ENTERPRISE-WIDE
SOFTWARE SYSTEM.”

6. 6
The IRS allows for some variety of structures for 401(k)
plans.These include a Roth 401(k), a Safe Harbor
401(k), and a SIMPLE 401(k). Let’s quickly take a look
at these options.
Traditional 401(k): Employers may contribute, but
are not required to. Contributions are not taxed, nor
are earnings, until funds are distributed-usually after
retirement. Early distributions for other than approved
reasons incur both income taxes and penalties. Major
advantages of a traditional 401(k) are that employer
contributions may be vested over time, and employees
can borrow against the funds. One disadvantage
is the increased reporting requirements, and thus
administrative costs, compared with SIMPLE or Safe
Harbor plans.
Roth 401(k): Employers may contribute, but are not
required to. Unlike a traditional 401(k), contributions
to a Roth account are made after taxes are taken out.
Earnings on a Roth account are usually tax-free if
distributed after the age of 59.5, whereas earnings on
a traditional 401(k) are taxed when distributed. Roth
accounts are usually offered in addition to a pre-tax
savings plan. These accounts work well for very young
savers and people who believe they will be in a higher
tax bracket when funds are distributed than when funds
are contributed.
TYPES OF PLANS
“ONE DISADVANTAGE OF TRADITIONAL PLANS IS THE INCREASED REPORTING
REQUIREMENTS, AND THUS ADMINISTRATIVE COSTS, COMPARED WITH SIMPLE OR
SAFE HARBOR PLANS.”

7. 7
Safe Harbor 401(k): This is similar to a traditional
401(k) plan, except that the employer contribution of
funds must be vested immediately. The paperwork for
these IRAs is simplified, and no anti-discrimination tests
are required each year. Employees may not borrow
against these funds. Safe Harbor plans are usually used
by companies with highly compensated employees
who want to contribute large amounts without anti-
discrimination limits.
SIMPLE 401(k): This 401(k) is designed to provide
a cost-efficient way for small employers to offer an
affordable retirement savings plan to their owners
and employees. Like a Safe Harbor plan, employers
must vest contributions immediately, and are not
required to perform anti-discrimination tests and other
paperwork. Employers must contribute to SIMPLE plans,
matching employee contributions up to 3% of wages,
or contributing a minimum of 2% of wages. You can’t
borrow against these plans, and contributions must be
made through payroll deductions. SIMPLE plans are
limited to employers with fewer than 100 employees who
earn more than $5,000 per year, and can’t be used if
the employer offers another type of retirement plan. The
benefits of using a SIMPLE plan? Easy to set up and
lower administrative costs.Your first inclination might be
to decommission the oldest equipment. But a CMMS can
run a report that details the fact that the four-year-old
equipment has broken down an average of three times.
“SIMPLE 401(K) IS DESIGNED TO PROVIDE A
COST-EFFICIENT WAY FOR SMALL EMPLOYERS
TO OFFER AN AFFORDABLE RETIREMENT SAVINGS
PLAN TO THEIR OWNERS AND EMPLOYEES.”

8. 8
Once you’ve decided what type of 401(k) plan makes
sense for your business, you’ll have a wide variety
of plans to choose from. When choosing the right
plan for your business, there are three important
questions to ask:
What are the administrative costs?
There are several different ways in which plan
administrators charge for their services. They include set-
up fees, annual fees, monthly fees, per-employee fees,
percentage-of-assets fees, reporting fees, trustee fees-
plus transactions charges for distributions, loans, and
moving assets between funds. The checklist below will
help you make sure you’ve asked about all the possible
fees, and ensure that there are no other hidden costs.
What is the annual rate of return?
Qualified retirement accounts are required to report
their annual rates of return for each type of fund, as
well as administrative costs. When comparing funds, be
sure to look at the average annual return after fees. You
can’t compare true rates of return unless you also know
the total annual costs of the plan, not just their nominal
rate of return. Most funds will list rates of return going
back several years so that you can see how their funds
perform over the long term, not just last year.
What variety of funds does the custodian offer?
Most 401(k) providers offer a family of plans that
employees may choose from, depending on their risk/
return preferences. For example, high-growth funds
usually invest in equities that pay little or no dividends,
whereas income funds have a lower risk, but also lower
rates of return from assets that don’t tend to fluctuate in
value. The variety of funds offered is a major factor in
choosing between providers.
CHOOSING A PLAN
“QUALIFIED RETIREMENT ACCOUNTS ARE
REQUIRED TO REPORT THEIR ANNUAL RATES OF
RETURN FOR EACH TYPE OF FUND, AS WELL AS
ADMINISTRATIVE COSTS.”

9. 9
Other Factors Involved in Choosing a Provider
Beyond the big three issues of administrative costs,
rate of return, and variety of investment vehicles
offered, there are a number of other factors that might
influence your choice of provider. Here are some other
issues you might want to consider:
Enrollment Procedures. How is the plan set up?
How do employees get started? What options are
available? With some plans, all employees are enrolled
automatically. Others require employees to opt-out
if they don’t wish to participate. Most plans have
restricted enrollment periods-specific times when
employees can enter the plan.
Employee Training Programs. Many plans include
instruction for employees on how the retirement plan
works; what choices they have; and what dates they
need to be aware of with respect to contributions,
distributions, and other transactions. Find out whether
there are extra charges for employee training, or if a
certain level of training is included in the plan price.
Customer Service. One reason for creating a SIMPLE
401(k) plan is that it eliminates a lot of the customer-
service issues inherent in traditional 401(k) plans. How
good is the provider at answering employee questions
about the plan, allowing for movement of money
between funds (rebalancing), assisting with enrollment,
and processing distributions? Once you’ve narrowed
down your choice of providers, you should do an online
reputation check on your finalists to see whether people
are praising or slamming them.
Investment Advising Capabilities. Some providers
have great tools to help employees understand and
manage their 401(k) investments. Look for quizzes
that help establish risk tolerance, and simulators that
show the effects of shifting a portfolio more toward
income versus growth. You might find that paying a little
more in administrative costs for a provider with a lot
of tools saves money in staff time devoted to assisting
employees with their investment choices.

10. 10
Most plans will provide you with a stated cost of
administering the plan, a projected annual rate of
return, and a history of the performance of the funds
they manage. It’s fairly easy to compare providers on
these criteria.
Where it gets tricky is all the hidden fees, costs to the
employer, and the value of customer-service capabilities.
Providers can be very clever about slipping in unexpected
fees. The checklist below will help prevent any surprises
when deciding between plans.
Here are some typical costs for 401(k) plans:
Basic Fees
• Set-up charge $500 - $5,000 (typical is $1,000)
• Annual base fee $250 - $3,000
• Monthly base fee $100 - $500
• Annual charge per employee $0 - $50
• Investment fee - annual $40 - $100
• Investment fee - percentage .15% - 1.0% of asset value
CALCULATING COSTS
“PROVIDERS CAN BE VERY CLEVER ABOUT
SLIPPING IN UNEXPECTED FEES. THE CHECKLIST
BELOW WILL HELP PREVENT ANY SURPRISES WHEN
DECIDING BETWEEN PLANS.”

11. 11
Additional Fees
• 12b-1 fee (.15% - 1.0% of assets)
• Enrollment charge
• Fund-switching charge
• Distribution charge
• Loan fees
“MOST PLANS WILL PROVIDE YOU WITH A STATED
COST OF ADMINISTERING THE PLAN, A PROJECTED
ANNUAL RATE OF RETURN, AND A HISTORY OF THE
PERFORMANCE OF THE FUNDS THEY MANAGE.”

12. 12
Don’t go outside the box. Investment funds have
been around long enough so that most provide very
similar packages, rates of return, and fees. Unless you
really know what you’re doing, stay away from funds
where the investment vehicles are unusual or the rates
of return seem inflated. When it comes to investing your
employees’ retirement funds, extra caution is warranted.
Avoid investment seminars. The North American
Securities Administrator Association (NASAA) released a
report showing a high level of investment fraud resulting
from in-person seminars. Avoid situations where sales
reps have you trapped. Do your homework online so that
you have access to a wide variety of resources.
It’s the service, not the fee. While your employees
may be focused only on a rate of return, as an employer
you should make an effort to compare customer-service
features and reputations. If the fund is generating great
success in returns after expenses, is it because it has
shifted the costs of service onto you, the employer? With
most major investment funds thoroughly regulated, rated,
and reviewed, the major differences between providers
may come down to customer-service amenities. Ask about
customer service, and check reputations online. You could
be paying a lot more for the “least expensive” fund than
for one with full-featured customer support.
PURCHASING TIPS

13. 13
This checklist will help you quickly assess
the best vendor for your needs.
Basic Setup
Traditional or Roth?
SIMPLE or Safe Harbor?
Employer Matching?
Vesting Period Allowed
Loans Allowed
Rollover Restrictions
Anti-discrimination Testing
Required to File IRS Form 5500
Administrative Costs
Average Total Annual Fees
Setup Fee
Flat Annual Fee
Percentage-of-assets Annual fee
Trustee Fees
12b-1 Fees
Per-employee Fees
Loan-processing Fees
Reporting or Compliance Fees
Any Other Fees
My Needs Vendor 1 Vendor 2 Vendor 2
401k CHECKLIST

14. 14
This checklist will help you quickly assess
the best vendor for your needs.
Rate of Return
Average Annual Rate of Return
Average Annual Return After Fees
5-year Average Rate of Return
5-year Average Return After Fees
Number of Years of Experience
Customer Service
Live Online Help From CRM Expert
Live Phone Help From CRM Expert
Training Videos Available
Free Training Available
My Needs Vendor 1 Vendor 2 Vendor 2

15. 15
Anti-Discrimination Testing: Tests performed to ensure
that highly compensated employees are not benefiting
disproportionately from a company’s contributions to
employee retirement accounts.
Asset Allocation: The distribution of an employee’s
retirement account between different assets, such as
equity funds, bond funds, real estate funds, growth funds,
income funds, etc.
Balancing: Portfolio balancing is the art of distributing
funds between assets with risk/reward profiles that blend
to achieve one’s financial goals.
401(k): A form of employer-sponsored retirement savings
account setup under Internal Revenue Service Code
section 401(k), which lays out the rules and rights for such
funds.
Form 5500: Annual federal tax return employers are
required to file documenting activities in a company’s
401(k) plan.
403(b): Similar to a 401(k) plan, a 403(b) plan can only be
used by nonprofit organizations, including certain schools,
hospitals, and ministries.
Individual Retirement Accounts (IRAs): The U.S.
Congress enabled these accounts to allow people to save
for retirement on a pre-tax basis, thus encouraging saving.
GLOSSARY OF TERMS

16. 16
Roth IRA: An individual retirement account where
contributions are made after-tax, earnings grow tax-free,
and distributions are not subject to income tax. Usually
offered in addition to a pre-tax retirement account.
Safe Harbor 401(k): A retirement savings account
specifically designed for highly compensated employees.
It does not have to meet anti-discrimination tests.
SIMPLE 401(k): A retirement savings account designed
for small businesses, with more rigid rules and lower
reporting requirements and administrative costs.
12b-1 Fee: A fee charged by some supposedly “no-
load” mutual funds for fund operation expenses. Can run
anywhere from .15% to 1.0% of assets.
Vesting: Vesting is when an employer funds a contribution
to employee retirement savings accounts. Many employers
vest their contributions at the end of the year. Some plans
require immediate vesting, while others allow employers to
vest their contributions over a lengthy period of time.
“VESTING IS WHEN AN EMPLOYER FUNDS
A CONTRIBUTION TO EMPLOYEE RETIREMENT
SAVINGS ACCOUNTS. MANY EMPLOYERS VEST THEIR
CONTRIBUTIONS AT THE END OF THE YEAR.”