Hardship distributions

To keep the Smooth Start 401(k) PlanTM simple and inexpensive for employers, it does not allow for hardship distributions.  This is a feature that is more useful in plans that have been in existence in a while.   In the beginning, there is not enough assets in the plan to make hardship distributions meaningful to the participants.

And, hardship distributions are additional work for employers.  The employer has to collect certain documentation from participants who take hardship distributions and the employer has to turn off 401(k) deferral for participants who take hardship distributions.

When you want to add this feature, you can seamlessly upgrade to Nova 401(k) Associates’ standard platform.


Participant Loans

Smooth Start 401(k) PlanTM gives the employer the choice of including loans or not including loans in its plan.  Loans are a popular feature with employees and give employees access to their 401(k) savings in the event that they need it.  But, there are several reasons why an employer would not want to offer loans:

  • Practically, 401(k) loans are a little additional work for the employer.  The employer must setup the loan repayments in payroll and remit the loan repayments to the record-keeper.
  • Philosophically, 401(k) loans are most appropriate if as an employer you believe that employees should have access to their 401(k) savings.  401(k) plans are not appropriate if you believe that 401(k) plans are primarily for retirement savings.

The Smooth Start 401(k) PlanTM plan loans include the following features:

  • The minimum loan is $1,000.  This means a participant must have an account balance of $2,000 to take a loan.
  • The maximum loan is the lesser of $50,0001 and 50% of the account balance.
  • Participants may only have one loan at a time.
  • Participants may not refinance their loan.
  • Loans are repaid through payroll deduction.
  • All loans must be repaid within five years.
  • Participants must repay their loan when they terminate employment OR the unpaid loan balance will default and become taxable.

1 The IRS requires that the $50,000 limit be reduced by the participant’s highest outstanding loan balance in the last 12 months.

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