defined contribution plan is a plan which provides for an individual account
for each participant with benefits based solely on the value of that
account. The account balance will reflect contributions, forfeitures, and
investment earnings and losses allocated to the account during the employee’s
period of participation. The account balance, with the exception of Roth
401(k) monies as described below, will remain pre-tax until the date of
Section 401(k) Plans
A traditional 401(k) plan is one in which employees may elect to defer a portion of their pay on a pre-tax basis into an Employer-sponsored retirement plan.
However, effective in 2006, Roth 401(k) Plans were introduced that allow employees to defer a portion of their pay on a post-tax basis into an Employer sponsored retirement plan.
A 401(k) plan can contain both traditional and Roth deferrals.
A plan under which contributions made by the Employer are allocated to participants pursuant to a definite predetermined formula. Contributions are generally discretionary and may be made without regard to profits.
The predetermined formulas are as follows:
Employer contributions are mandatory, as outlined in the plan document. Typically, contributions are stated as a percentage of participants’ compensation. These plans may also be integrated with Social Security.
Employee Stock Ownership Plan (ESOP)
An ESOP is a profit sharing or money purchase plan in which plan assets are required to be invested primarily in Employer Stock. Generally, the allocation formula used in an ESOP is also based on compensation.
A plan that allows participants in governments, schools and entities that are tax-exempt to defer a portion of their pay on a pre-tax basis (similar to traditional 401(k) plans). Roth 403(b) deferrals are also available.
The process of allocating contributions, transfers and investment gains or losses to participants in a defined contribution plan, known as valuation, may occur as frequently as daily or as infrequently as annually. The valuation process results in updated participant account balances reflecting all activity (i.e. contributions, transfers, gains or losses, etc.) that occurred during a valuation period. The two valuation methods are balance forward and daily valuation.
Balance forward accounting is a method of approximating a participant’s share of gains, losses, and expenses; each participant’s account shares proportionately in these.
Daily valuation is more precise. Units of securities are allocated to a participant’s account; subsequent earnings, gains, losses, and expenses attributable to these units can be directly computed and allocated to the participant by daily revaluing of the units.
Beyer-Barber Company will provide the following administration and record keeping services with respect to Defined Contributions Plans:
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