What is a fiduciary?

A fiduciary is a person, or organization, that acts on behalf of a client. They're legally obligated to put their clients’ best interests ahead of their own, with a duty to preserve good faith and trust. (Source: Investopedia.com)

You know they're acting in your best interest because, if they don't, they could face criminal charges.

What is a 3(16) fiduciary?

A 3(16) fiduciary is a service provider hired by a company to administer its retirement plan. They're bound by the legal and ethical standards of all fiduciaries, described above.

What is a fiduciary?

A fiduciary is a person, or organization, that acts on behalf of a client. They're legally obligated to put their clients’ best interests ahead of their own, with a duty to preserve good faith and trust. (Source: Investopedia.com)

You know they're acting in your best interest because, if they don't, they could face criminal charges.

What is a 3(38) fiduciary?

A 3(38) fiduciary is a special type of investment manager who is appointed to select, monitor, remove and replace investment options offered under the plan.

When using a 3(38) fiduciary, employers (a.k.a. plan sponsors) are relieved of all fiduciary responsibility for the investment decisions made by this investment manager. Many employers who are not comfortable making investment decisions themselves — or simply don't want to — appreciate this extra layer of protection.

What is "vesting?"

When an employee puts their money into their 401(k) account, 100% of their own money always belongs to them.

However, when an employer offers to contribute funds toward an employee's savings, those employer funds are sometimes subject to what's called "vesting." That means if the employee leaves the company too quickly, they don't get to keep some of those employer funds when they leave. How much of those employer funds your employee gets to keep is determined by what's called a "vesting schedule."

Example Vesting Schedule

In this example, you can see how an employee might be incentivized to stay with your company for at least 2 years. Vesting schedules can be shorter or longer, and more or less complex than this example.

What's a "participant loan?"

When your retirement plan allows participant loans, employees have the opportunity to borrow from their own 401(k) account balances.

Generally, a person can borrow up to 50% of their vested account balance. They can borrow a minimum of $1000 and a maximum of $50,000.

By taking a loan instead of making a withdrawal, they avoid having to pay tax penalties for withdrawing that money. Interest is charged. Repayments are made through payroll deduction on a gradual repayment schedule.

What is a "hardship distribution?"

Some savers feel nervous about putting savings into retirement accounts because they worry that they won't be able to access their own money in the event of an emergency or major life expense. We alleviate this worry by allowing for what's called "hardship distributions."

A hardship distribution is a withdrawal from a saver's retirement account made because of an immediate and heavy financial need. There are specific situations that meet definition of a "hardship," like emergency medical bills or disaster home repairs. The saver can only withdraw the amount necessary to cover their financial need. The money never has to be paid back to the account, is taxable, and is usually subject to a tax penalty.

What is a "Safe Harbor Match?"

Employers often offer to match some of what their employees save in their retirement plans. For example, an employer might say, "If you defer 4% of your salary (or other compensation) into your 401(k) every month, I'll match all of that 4% you save dollar-for-dollar." The employee could defer more than this first 4%, of course, but this particular employer is only promising to match 4%.

This is a strong incentive for your employees to save using their 401(k) account.

But there's another major reason why you, as an employer, may offer to match employee savings like this: "Safe Harbor." If you offer this Safe Harbor Match when your employees save 4%, you (the employer) get a pass on 401(k) non-discrimination testing in exchange. Non-discrimination testing tends to be a headache, so many employers prefer to avoid it altogether.

What is "discretionary employer profit sharing?" 

This is NOT required.

When a company owner wants to share the profits in the business (up to 25% of the company’s payroll) with the employees, that's called "profit sharing." You (the employer) get to decide how much to share each year, and may contribute it toward your employees' retirement accounts.

That contribution is distributed to all employees who meet the requirements defined in your retirement plan rules. Your plan will also have rules about how the money is divided up between those eligible employees. These funds may be subject to a vesting schedule to entice employee loyalty, if you wish.

What are "additional match contributions?"

This is NOT required.

Employers often offer to match some of the savings their employees contribute to their retirement plans. For example, an employer might say, "If you defer 6% of your salary (or other compensation) into your 401(k) every month, I'll match all of that 6% you save dollar-for-dollar." The employee could defer more than this first 6%, of course, but this particular employer is only promising to match 6%. A match contribution is given to only those employees who are contributing in the form of salary deferrals from their own paycheck.

If your plan has a Safe Harbor feature (our Shared Growth plan has one), your company is required to match your employees' first 4% of payroll. But each year you're allowed to offer additional match contributions beyond that first 4%, like in the example above. These additional funds may be subject to a vesting schedule to entice employee loyalty, if you wish.