If you’re at all involved with 401(k) plans, what I’m about to say isn’t a major news flash: Employees have no real understanding of this tax-favored retirement plan and how it can impact their future.

The reasons are many and complex and beyond the scope of today’s discussion. But these are 10 basic things that employees should know about their 401(k) plan. You’ll often see their lack of understanding in the form of questions they will ask:  

  1. When can I join the plan?
  2. Can I transfer money from a previous employer's plan or an IRA?
  3. How much can I contribute to the plan each pay period?
  4. Is there a company match?
  5. What investment options are available?
  6. Are hardship withdrawals allowed from the plan?
  7. Can I borrow money against my account?
  8. Does the plan offer any type of educational material or advice service help to me invest my funds?
  9. What happens to my money if I quit working for this company?

10.  Who do I contact if I have questions about the plan?
Obviously, there is a lot more employees need to know. But as an advisor to 401(k) plans, you can help employees get a better understanding of how the plan works and the value it can provide.

An explanation about the Cost of Waiting, Asset Allocation, and Dollar Cost Averaging may also help.

Jerry Kalish is an EBA Advisory Board member and President of National Benefit Services, Inc., a Chicago-based third party administrator. He is a Guest Lecturer at John Marshall School of Law LLM Program in Employee Benefits and serves on the Great Lakes IRS Advisory Council for Tax Exempt and Government Entity Plans. Jerry has been publishing The Retirement Plan Blog since 2006. He can be reached by email at jerry@nationalbenefit.com and followed on Twitter.

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