Traditional 401(k) Plan

The Traditional 401(k) Plan allows eligible employees to contribute a portion of their salary to a retirement plan. Employers may choose to contribute either matching or non-elective amounts to the plan on behalf of eligible employees. Employer contributions are tax deductible and employee contributions are excluded from income for Federal Income Tax purposes.

Plan Eligibility

Sole proprietorships, partnerships, limited liability corporations (LLCs), or incorporated businesses, including subchapter S corporations, may establish a 401(k) plan.
All eligible employees must be allowed to participate in the 401(k). An eligible employee is any employee who:
- is at least 21 years old
- has performed one (1) year of service and worked 1,000 hours in the year beginning with the date of hire.
Union employees and non-resident aliens who have no U.S source of income may generally be excluded from coverage.

Note: An employer can establish less restrictive eligibility requirements than the ones listed above, but not more restrictive ones.

Vesting

Vesting is the participant's ownership in the value of his/her retirement account or benefit. The employer can choose from many available vesting schedules. The schedule selected applies to all employees.

Tax Advantages

Employer contributions are tax deductible for the employer - up to 25% of compensation of all participants.
Employee elective deferrals are excluded from the employee's income for federal income tax purposes.
Tax-deferred growth potential is possible -- any investment earnings grow tax-deferred until withdrawn.

Plan Deadline

The deadline to establish a 401(k) plan is the last day of the fiscal year of the business. For calendar year businesses, this deadline is December 31. However, the plan should be established as early in the year as possible to allow employees to fully take advantage of elective deferral.

Contribution Flexibility

The employer may elect a fixed or discretionary matching contribution formula.

A discretionary profit sharing contribution may also be made to the plan, subject to deductibility limits (25%).

Investment Options

State Farm Mutual Funds®

Key Advantages
Attractive benefits for employees

Offering a 401(k) plan can make it easier to attract and retain valuable employees.
A 401(k) plan can assist in providing retirement income for eligible employees.
Employees contribute toward the retirement benefits offered by the employer.
Automatic enrollment enables new employees to automatically be placed into the plan as soon as they are eligible.
Automatic contribution increases make it easier for participants to save more for retirement. Employers who select this feature must adjust the employee deferral percentage annually.
Designated Roth Contributions are allowed in Traditional 401(k) Plans.

Early Withdrawal Penalty

Generally, a 10% tax penalty is applicable to distributions for participants under age 59 1/2. Participants may have to pay Federal Income Tax on the distributions, as well.

Reporting and Disclosure Requirements

Reporting to the IRS -- Form 5500 (Annual Return/Report of Employee Benefit Plan) and applicable schedules must be filed with the IRS each year.
Disclosure to Plan Participants and Beneficiaries -- each plan participant or beneficiary may request an easily understandable summary plan description within 90 days after they become eligible and a summary annual report each year within 7 months after the end of each plan year.

For detailed information on qualified retirement plans, please contact your State Farm agent.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 269 KB) .

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

AP2008/08/1011