One of the most popular and widely offered retirement plan options is the cash-or-deferred arrangement (CODA), commonly known as a 401(k) plan, after the section of the Internal Revenue Code (IRC) that authorizes them. A CODA is a special type of defined contribution plan under which an eligible employee can elect to have the employer defer part of his or her salary and contribute the deferred amount to the plan or receive the full amount of the salary as cash. If an employee chooses to defer compensation, it is not subject to income taxation until it is withdrawn from the plan.
For a
Limited Time receive a
FREE HR Report on the "Top 10 Best Practices in HR Management, 2012”. This comprehensive 50 page report covers Healthcare, Recordkeeping, Hiring, Retention, and other compliance issues.
Download Now Because 401(k) plans are tax-qualified defined contribution plans that include a CODA, they must satisfy all of the requirements for qualified plans, the special requirements of IRC Sec. 401(k), and all the Employee Retirement Income Security Act (ERISA) requirements that apply to defined contribution plans, including minimum participation and vesting standards, fiduciary rules, and reporting and disclosure requirements. Many special rules apply to 401(k) plans, including special vesting and nondiscrimination testing requirements. In addition, the rules on plan loans and blackout periods, while they impact other types of retirement plans, most often affect the design and administration of 401(k) plans.
While many 401(k) plans only include a CODA, they often also provide for employer-matching contributions and discretionary employer contributions. Many CODAs are part of a larger defined contribution plan that may include a profit-sharing component. For some employers, a 401(k) plan is part of a retirement package that may include a defined benefit plan or a hybrid plan.
Matching contributions. Perhaps ...