How to Enroll in your Company 401(k) Plan

(August 22nd, 2009)

Most employers in America offer a 401k plan for their employees to encourage them to save towards their retirement. A 401(k) plan is usually funded with your before-tax salary contributions and matching contributions from your employer (if you meet the eligibility requirements). Thus in order to save for your retirement, and as well as to take advantage of company matches, it is important you have set up a 401(k) account with your current employer, or if you are changing jobs, with your new employer. Here's how to do it:

i) Confirm with the HR department of your new employer or current employer if a 401k plan is being integrated with your compensation package and benefits. If you are included, then most likely you will be under the automatic enrollment program where your 401(k) contributions will automatically be deducted from your bi-weekly payroll checks. Thus, all you will have to do in such a case is designate the percent of your salary that will be directed towards your 401k account each pay period.

ii) If there is not an automatic enrollment, read the eligiblity criteria for participating in your employer's 401k plan either through the company's HR website or by obtaining a brochure or information package from your plan administrator. Some companies have 401k vesting rules where you must work for a certain # of years, usually 1 year before you are eligible to contribute to their employer sponsored 401k plan. This is done so as to reduce the administration cost of employee turnover or churn.

iii) You must meet the requirements for enrolling including enrolling at a time when it is allowed, being 21 years of age and older and working for a minimum time period (vesting). If you have questions about any of these factors, be sure to contact your HR department to obtain information and advice.

iv) Take in to account your marital status when signing up for an employer sponsored 401(k) plan because if you die, your 401k money will usually be given to your spouse. If you wish some other party to receive this money, then elect to do so by filling out an official waiver, and designating the other party as your beneficiary. This official waiver must be registered with the IRS and also incorporated in to your will (yes, you must also write a will and get it notarized through a lawyer).

v) Select how much from your bi-weekly pay will you contribute towards your 401(k) account. You can either fill in a percent, example 10% of your salary, or a certain deductible amount. Most employers also offer bonus plans for their employees, payable at year-end. You can use this money to make a lump-sum contribution to your 401k account as well.

vi) Make sure that all your 401k enrollment forms are filled correctly and that there are no errors. If you do not understand a particular clause in your 401(k) agreement, be sure to ask your 401k plan administrator or your HR department before signing off. It is better to be safe than sorry.