Defining a 401k Plan

Company Level Code defining Employee 401K Contribution (Percentage Based)

Click an area on the image above for more detailed information.

The XYZ Company offers their Employees a 401k Plan as follows:

• Employees can contribute either a percentage of their gross earnings or a fixed amount on a weekly basis.
• The Company matches their Employees' Contribution on a 2 to 1 basis.
• The maximum per occurrence is $100.00.
• The maxium per tax year is $2000.00.

Three Company Level Codes are required to automate the 401K plan as described above:

1. Code 150: Employer Matching contribution
2. Code 151: Employee Contribution for percentage-based deductions
3. Code 152: Employee Contribution for fixed amount deductions.

NOTE: The numbers assigned to these Codes (150, 151, 152) are assigned by the user who creates the Codes. The only limitation is that they be between 100 and 999.

Every Code is first created at the Company Level, with an Employee # of zero. The Company Level code allows the user to define certain aspects of the Code to be shared by all Employees who utilize the code. These areas are not editable at the Employee Code Level. (See the picture below--all disabled fields are data that can only be set at the Company Level.)

In the above picture, we are browsing Code 151. Let's examine it in some detail: We have chosen to use the number 151 to define Employee 401(K) percentage-based contribution. We have set the Category to "4" -- 401K EMPLOYEE and the Type to "02" -- PERCENT OF GROSS. We have unchecked the Federal, State and Local W/H checkboxes, since the 401K is a pretax deduction as far as these withholdings are concerned. We have not checked the Global checkbox, since not all employees of the XYZ Company are eligible for the 401k Plan. Lastly, notice that we have set the Amount, Limit and Balance to Zero. These values will be overridden on an employee-by- employee basis by Employee Level Codes. An example follows.

Employee Level Code (Employee 8838) defining 401k Contribution for Thomas Roberts

When a Code needs to be further defined for individual employees, an Employee Level Code is created.

The above image shows the definition of the Employee Level Code for Thomas Roberts. Notice that many of the fields are disabled. These values are defined at the Company Level, and are then shared by all Employee Level Codes.

Two of the enabled fields, Amount and Limit, are of greatest concern to us in this example. Mr. Roberts has elected to have 12% of his Gross pay deducted from his Paycheck and applied to his 401K Retirement Account. He does not want to place any limits on this contribution; therefore, Limit and Balance have been set to zero. The "12.00" entered in the Amount field overrides the value of 0.00 that was entered in the Company Level Code insofar as Mr. Roberts is concerned.

Because we created the Employee Level Code151 for Mr. Roberts, the CCS Program will automatically assigned this Code to Mr. Roberts' default Earning & Deduction List, causing the 401k Contribution to be calculated during the Automatic Paycheck Creation Logic.

At this point we have defined the Percentage Based Employee side of the Contribution at the Company Level and at the Employee Level (for one Employee). NOTE: Once you create a Company Level Code, you can use the Copy and Assign buttons to automate the definition of Employee Level Codes instead of creating each Employee Level Code Manually.

Company Level Code defining Employee 401K Contribution (Fixed Rate)

Since the XYZ Company allows both a percentage and fixed amount to be deducted for 401K, we need to define a Fixed Rate Code as well. The image above shows this definition. All fields are the same as code 151 with one important exception: the Type is "01" -- Fixed Rate. After creating this code, we would create Employee Level Codes (using the Copy button) for those Employees wanting a fixed amount to be deducted in the same manner as we did for Code 151, above.

Now that we have defined the Employee side of the contribution we need to define the Employer Matching Code.

Company Level Code defining the Employer Matching 401k Contribution.

The above image shows the definition of the Company Level Code defining the Employer Matching 401K contribution. The Category has been changed to "K" -- 401K Employer. We have set the Type to "08", the Amount to 50% and the Limit to 100.00, with a Balance of 2000.00. This one Code is the only Code that is needed to handle the Employer Matching Contribution; no Employee Level Codes will be required. Let's see how this works:

The Type Field: The Type has been set to "08" -- Percent of Deductions. This setting is similar to "02" -- Percent of Gross; however, instead of the calculations being based the Employee's Gross Earnings, the calculations will be based on one or more Deductions.

The Include Field: We have set the Include field to "151,152". Therefore, only Codes 151 and 152 will be considered in this calculation. Here are the steps involved:

• The CCS Automatic Paycheck creation Logic will total all of the Employee Deductions for Codes 151 & 152 (our Percentage Based and Fixed Rate Employee Contribution Codes).
• It will then multiply the results by 50 %.
• This product will become the default deduction for the Employer's Matching contribution. (The user can change it if desired before printing the check.).
• Since we marked Code 150 as Global, any Employee whose paycheck contains Code 151 or Code 152 would automatically receive his or her share of this Matching Contribution.

NOTE: The Employer's Matching contribution becomes a Liability to the Employer in a similar fashion as Employer FICA, FUTA, etc.

The Limit of 100.00 prevents the Employer Match from exceeding $100.00 in any one paycheck. The Balance of 2000.00 prevents the contribution from exceeding $2000.00 in a single tax year.

Once these Codes are set up, the calculations are performed week after week, automatically with no additional data entry or operator intervention.

Note: There are countless other possible methods to set up a 401K. Here are a couple of examples:

• We could create separate Codes to handle commonly used percentages (e.g., 5, 10, 15, 20 & 25 percent). We would then simply assign the proper Company Level Code to any Employee who elected to use one of these standard percentages. Only those Employees wanting a non-standard amount would require an Employee Level Override Code.
• For new Employees, we could have the 401K automatically begin on a certain date by using Code 151 (or 152) as the Replacement code in the Probation Code given to all Employees on upon Initial Hire. Once the Probation Code expired, it would be replaced automatically with the 401K Code, without any further thought on our part.
• We could define an "Auto Assign" filter to cause the 401k codes to be applied (or scheduled to be applied) automatically based on the Employee's Job, Class, Craft, Department, Union, or Days Hired.

You need only decide what you want to accomplish; the CCS Payroll program has the power and flexibility to handle it.

Click here for an example of an Basic Employee Override to create a Bonus.

Click here for a more advanced override using Timecard to Paycheck Links.