Participation in a 401(k) plan is available only through your employer. To participate, you sign up with your employer’s plan, or you may be automatically enrolled.

Employees: What you need to know

Once you have a 401(k) account in your name, there are three ways that money can be placed into it:


You determine how much of each paycheck you would like deposited in your 401(k) account (called a “contribution” or “deferral rate”). This money is taken out of your paycheck before taxes are deducted.


Your employer can match some or all of your personal contribution. So, for example, if you contribute $2,000 a year, your employer may match with $2,000.


Money from a 401(k) account you had with a previous employer can be “rolled over” into your current 401(k) account.

At least every three months you will receive a statement detailing how much money is in your 401(k) account, how much your balance has grown or declined, how much you contributed, how much your employer contributed, fees that you paid, and where your money is invested. This same information may also be found on a website for your company’s 401(k) plan.

Participant checklist: Staying on top of your 401(k)

Many people sign up for their company 401(k) plan and then do nothing, thinking that the plan will automatically take care of everything. Don’t just set it and forget it! You need to take an active role in managing your 401(k) – it’s your financial future.


Check your statements and monitor the return on your 401(k) investments.


Be aware of the fees you are paying.


If you get a raise, increase your contribution too, so your savings rate doesn’t fall behind.


Shift your mix of investments (or “asset allocation”) over the years, as you get closer to retirement; this is called rebalancing.


Take full advantage of the employer match.

Employers’ responsibility to participants

Your employer is not required by law to offer you a retirement plan. If your company has a 401(k) plan, they are providing you with an important benefit toward your future financial security. If your employer offers a matching contribution, that’s even better.

In the world of 401(k)s, employers are called “plan sponsors.” Federal law requires plan sponsors to follow certain rules in handling 401(k) plans. They have a “fiduciary responsibility” to ensure that they make decisions in the best interests of you, the plan participants. This means that they must:


Carefully select investments and service providers


Select a diverse range of investment options (mutual funds)


Monitor plan performance and make changes as necessary


Make sure that plan fees are reasonable


Provide adequate, timely information to participants

By law employers are required to provide you (the plan participant) with three documents about your 401(k):


Summary plan description – the rules of your plan, how it works


Summary annual report – general financial results for the plan for the year


Your account statement – at least quarterly

New regulations also require employers to disclose all 401(k) fees and costs to plan participants. Your 401(k) quarterly statements should clearly show the dollar amount of fees deducted from your account.

You will need more information and support to help you manage your 401(k) adequately. In recent years many employers have begun providing more support in the form of:


A toll-free telephone number for questions about your account


A website with information about the plan and your individual account


General information about mutual fund investing


Planning tools such as retirement calculators


Educational seminars on investing and 401(k)s


Investment advice from an independent advisor

Talk to your plan administrator if you feel that your employer is not acting in your best interests or not providing enough information about your 401(k) plan.

The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) is the agency responsible for enforcing the laws that govern fiduciary responsibility. For more information visit their website.

Service Providers’ responsibilities to participants

The financial company that offers your company 401(k) plan is called a “service provider” or “plan provider.” They provide and manage the investments (such as mutual funds) that your plan makes available to you. Examples of service providers include mutual fund companies, insurance companies and brokerages.

Service providers also oversee the administration of the 401(k) plan, which includes managing recordkeeping, fees and statements. Your plan may use more than one service provider – one for investments and one for recordkeeping, for example.

Your employer has a responsibility to select a competent service provider for your plan. *