REQUIREMENTS OF 401(K) PLANS
A 401(k) plan has certain requirements:
The plan must be part of a qualified stock bonus plan or profit-sharing
plan. (A grandfather clause allows a pre-1974 money purchase pension plan to
include 401(k) provisions.) The Employee Retirement Income Security Act was
passed in 1974 and altered many rules for pension plans.
Distributions are allowed for the following events:
Termination of employment
Retirement (age 59½ for most plans)
Certain hardships (such as medical expenses or college tuition)
Death or disability
Eligibility requirements can be set for minimum age and service
(for example, employees 21 and older with 1,000 hours of service).
Employee elective salary deferrals are limited to $14,000 in
2005 and $15,000 in 2006. For employees fifty or older, a special "catch
up" feature allows an additional $4,000 of salary deferral in 2005.
What else is there to know about these plans?