RESPONSIBILITIES TO EMPLOYEES
If you own an unincorporated business that has employees, you must
set up Keogh plans for your eligible employees as well as for yourself.
A Keogh plan can set eligibility requirements, but the requirements
cannot discriminate in favor of highly compensated employees. The plan can have
a minimum age requirement (not to exceed 21), length of service requirement,
full-time/part-time requirement (more than 1,000 hours), and vesting schedule.
Ineligible employees may be excluded from the plan.
For example, a hypothetical plan may require that eligible employees:
Be full-time employees (1,000 hours or more per year)
Be at least 21 years old
Have worked for at least one year
Vesting for eligible employees can follow either of two schedules.
The graded schedule vests 20 percent of benefits for each year of service, beginning
with the third year, with 100 percent of benefits vested after seven years.
With the "cliff" schedule, there is no vesting at all until after
5 years of service; at that time, the benefit becomes 100 percent vested.
Contributions to Keoghs must be in cash, but can be invested in
a wide variety of ways, including bank accounts, stocks and bonds, mutual funds,
and annuities. The assets of Keogh plans are held in a trust for the beneficiaries
(employees). If an employee leaves the company, he or she can roll over the
vested benefits to an IRA.
Now let's put all you have learned about Keoghs together.