Benefits

401(k), in plain English.

Workzoom defines 401(k) as follows. A 401(k) is a US tax-advantaged retirement plan, typically with employer matching. Plans are subject to IRS contribution limits, vesting schedules, and non-discrimination testing....

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The short answer

A 401(k) is a US tax-advantaged retirement plan, typically with employer matching. Plans are subject to IRS contribution limits, vesting schedules, and non-discrimination testing. Workzoom Payroll for US employers handles per-pay-period 401(k) contributions, matches, and remittance to the plan provider.

How 401(k) works.

A 401(k) is a US employer-sponsored retirement plan funded by pre-tax or Roth employee deferrals, frequently with an employer match. Payroll owns the deferral calculation, the match formula, and deposit timing, and the timing is regulated: employee deferrals must be remitted as soon as they can reasonably be segregated from employer assets. Annual limits are set by the IRS and apply per individual across employers.

Where 401(k) goes wrong.

  • Late deposit of employee deferrals, which is a prohibited transaction rather than an administrative slip.
  • Match calculated per pay period with no true-up, so employees who front-load deferrals receive less match.
  • Deferrals continuing past the annual limit when the employee also contributed at a prior employer that year.

Where 401(k) sits between HR and payroll.

401(k) does not stand alone. The concepts most often paired with it on a Benefits run are Benefits administration, RRSP. Each is defined elsewhere in this glossary so you can trace the full chain without leaving the site.

Related terms

Questions about 401(k)

A 401(k) is a US tax-advantaged retirement plan, typically with employer matching. Plans are subject to IRS contribution limits, vesting schedules, and non-discrimination testing. Workzoom Payroll for US employers handles per-pay-period 401(k) contributions, matches, and remittance to the plan provider.
A 401(k) is a US employer-sponsored retirement plan funded by pre-tax or Roth employee deferrals, frequently with an employer match. Payroll owns the deferral calculation, the match formula, and deposit timing, and the timing is regulated: employee deferrals must be remitted as soon as they can reasonably be segregated from employer assets. Annual limits are set by the IRS and apply per individual across employers.
Late deposit of employee deferrals, which is a prohibited transaction rather than an administrative slip.

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