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Unlocking Retirement Savings: A Guide to the SIMPLE 401(k) Plan for Howmet Aerospace Employees

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What Is It?

In General

According to a recent survey conducted by  Bankrate , 56% of American adults aged 55 and older have not saved enough for retirement. The survey also revealed that 1 in 5 adults in this age group have no retirement savings at all, while only 16% have saved enough to retire comfortably. These statistics may serve as a wake-up call for those who have not yet taken action towards securing their financial future.

With that under consideration, Howmet Aerospace employees soon to be leaving the workforce are probably interested in finding ways to save for retirement. If you are employed at Howmet Aerospace and own a business on the side, you may also be concerned about attracting and retaining qualified employees. You may be able to pursue both of these goals by establishing a savings incentive match plan for employees (SIMPLE) 401(k) plan. For business owners working for Howmet Aerospace, a SIMPLE 401(k) is a retirement plan for certain self-employed persons and small businesses. To qualify, you can't maintain another employer-sponsored retirement plan and must have no more than 100 employees who were employed in the past year and who earned at least $5,000. A SIMPLE 401(k) plan is structured as a 401(k) cash or deferred arrangement. The SIMPLE 401(k) plan was created in conjunction with the SIMPLE IRA, so these plans share certain characteristics.

Caution:   Except as described below, SIMPLE 401(k) plans are generally subject to the same rules that apply to traditional 401(k) plans.

Eligible Employees Can Defer Up To $16,000 In 2024

The SIMPLE 401(k) allows eligible employees — including Howmet Aerospace retirees who are now self-employed — to defer up to $16,000 of their wages to the plan in 2024 (up from $15,500 in 2023). In addition, employees aged 50 and older may contribute an additional $3,500 pre-tax in 2024 (unchanged from 2023). All employees who are age 21 or older and have completed one year of service with the employer must be eligible to participate in the plan ( Investopedia ) ( IRS ).

The Employer Must Make Contributions to the Plan

For Howmet Aerospace employees who own a business, you must make either a matching contribution or a nonelective contribution every year. A matching contribution must match the amount that each employee contributes up to a maximum of 3% of the employee's annual compensation. Because the maximum employee deferral for 2024 is $16,000 ($19,500 if age 50 or older), your maximum employer matching contribution for an employee is effectively the lesser of $16,000 ($19,500 if age 50 or older) or 3% of the employee's compensation ( Investopedia ) ( Kiplinger.com ).

If you choose instead to make a nonelective contribution, you must contribute 2% of each employee's annual compensation whether or not the eligible employee chooses to contribute to the plan. No other employer contributions to the SIMPLE 401(k) plan are permitted.

Caution:  The compensation on which both the 2% nonelective contributions and the 3% matching contributions are made may not exceed $345,000 in 2024 (up from $330,000 in 2023) ( Investopedia ) ( IRS ).

Quick Comparison with SIMPLE IRA And Traditional 401(K)

Despite the similarities the SIMPLE 401(k) shares with the SIMPLE IRA, there are significant differences between these two retirement vehicles that business owners working for Howmet Aerospace should know. In particular, the SIMPLE 401(k) is more difficult to administer than the SIMPLE IRA and offers less flexibility. The following table shows some of the differences between traditional 401(k) plans, SIMPLE 401(k) plans, and SIMPLE IRAs.

Table

Comparison of traditional 401(k)s, SIMPLE 401(k)s, and SIMPLE IRAs:

 

Traditional 401(k)

SIMPLE 401(k)

SIMPLE IRA

Number of employees

Any number of employees

100 or fewer employees earning at least $5,000

100 or fewer employees earning at least $5,000

Maximum deferral

$23,000 in 2024, $30,500 if 50 or older

$16,000 in 2024, $19,500 if 50 or older

$16,000 in 2024, $19,500 if 50 or older

Required employer

contribution

None, unless plan is top-heavy, is a safe-harbor plan, or includes a qualified automatic contribution arrangement (QACA)

Dollar-for-dollar match up to 3% of pay, or 2% of pay for all eligible participants; pay for both limited to $345,000 in 2024

Dollar-for-dollar match up to 3% of pay (unlimited), or 2% of pay (up to $345,000 in 2024) for all eligible participants (3% of pay match may be reduced to as little as 1% in any two of five years)

Roth contributions permitted?

Yes

Yes

No

ADP/ACP discrimination testing?

Yes (unless safe-harbor plan, or qualified automatic contribution arrangement (QACA))

No

No

Early withdrawal penalty

10%

10%

25% first two years of participation, then 10%

Withdrawal of employee pre-tax contributions

Restricted

Restricted

Unrestricted

Excludible employees

  • under age 21
  • less than one year of service
  • certain collectively bargained employees, nonresident aliens, and other classes of employees
  • under age 21
  • less than one year of service
  • certain collectively bargained employees, nonresident aliens, and other classes of employees
  • employees who have not earned at least $5,000 in any two prior years, or who are not expected to earn at least $5,000 in the current year
  • certain collectively bargained employees and nonresident aliens

Vesting schedule

For employer contributions only

No, all contributions 100% vested

No, all contributions 100% vested

Federal reporting by employer

Same as other qualified plans

Same as other qualified plans

None

May the employer have other plans?

Yes

No

No

Are loans allowed?

Yes

Yes

No

 

Who Can Establish A SIMPLE 401(K) Plan?

For Howmet Aerospace employees potentially owning a business, you can establish a SIMPLE 401(k) plan if you're self-employed or have a qualified operation, but only if you don't maintain another employer-sponsored retirement plan.

Self-Employed

For Howmet Aerospace employees who have a side business without any workers, you can set up a SIMPLE 401(k) plan for yourself and make contributions to the plan. You're considered to be self-employed if you're a sole proprietor or are otherwise in business for yourself. For Howmet Aerospace employees, self-employment income can also involve part-time work.

Qualified Small Business

If you are employed at Howmet Aerospace and own a qualified small business, you may want to consider setting up a SIMPLE 401(k). You will be eligible if you employed 100 or fewer employees in the past year who earned at least $5,000. The number of employees is figured on an aggregate calendar-year basis, rather than on an average daily basis. For example, say you employed 97 employees earning over $5,000 in January. Two months later, seven employees left and were replaced by seven other employees receiving over $5,000. You would not qualify as a small employer. That's because you would have employed a total of 104 employees during the year.

Tip:   See Questions & Answers below for more information about the 100-employee limit.

Technical Note:   The term 'employer' includes corporations, partnerships, sole proprietorships, and other trades or businesses under common control (whether incorporated or not). For example, if you operate both a computer rental agency and a computer repair business as sole proprietorships, the employees from both businesses would be counted together to determine if you have more than 100 employees.

Tip:   A tax-exempt employer may adopt a SIMPLE 401(k) plan if it meets the 100-employee test described above. Government employers generally can't have SIMPLE 401(k) plans, but can adopt SIMPLE IRA plans.

Cannot Maintain Another Employer-Sponsored Retirement Plan

For Howmet Aerospace employees and potential business owners, you must not maintain any other employer-sponsored retirement plan [such as a 401(k) plan, a tax-sheltered annuity, or a simplified employee pension plan] that benefits any of your employees eligible to participate in the SIMPLE 401(k).

What Are Some Advantages of Establishing a SIMPLE 401(K)?

The Plan Is Not Subject to the Federal Nondiscrimination Tests That Usually Govern 401(K) Plans

For Howmet Aerospace employees intending to open or already owning an existing business, as long as you follow the vesting and SIMPLE plan requirements, your plan is assumed to have met the complicated rules under the Internal Revenue Code that prohibit discrimination in favor of highly compensated employees.

Pre-Tax Dollars Are Contributed and Grow Tax Deferred

The dollars invested in the plan are pre-tax dollars and grow tax deferred. That means that your employees can exclude the contributions from their gross income.

Your Business May Deduct Its Contributions to The Plan

For Howmet Aerospace employees owning a business, your business can deduct its matching or nonelective contributions to employees for the calendar year in which they are made.

Participants Are Allowed To Take Out Plan Loans

Participant loans are permitted in accordance with the rules governing traditional 401(k) plans. This is in contrast to SIMPLE IRAs, which do not permit loans.

Creditor Protection

Funds held in a SIMPLE 401(k) plan are fully shielded from your employee's creditors under federal law in the event of the employee's bankruptcy. If your SIMPLE 401(k) plan is covered by the Employee Retirement Income Security Act of 1974 (ERISA), plan assets are also fully protected under federal law from the claims of both your employees and your creditors, even outside of bankruptcy (some exceptions apply — for example, qualified domestic relations orders and IRS liens).

Caution:   If your plan covers only you, or you and your spouse, ERISA will generally not apply to your plan. In this case, whether or not plan assets are protected outside of bankruptcy depends on the laws of your state. Consult a professional if asset protection is important to you.

Roth Contributions Permitted

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Unlike SIMPLE IRA plans, SIMPLE 401(k) plan can permit Roth contributions.

What Are Some Drawbacks of Establishing A SIMPLE 401(K) Plan?

Standard Reporting and Disclosure Requirements  Unlike SIMPLE IRAs, which lack extensive reporting and disclosure requirements, SIMPLE 401(k) plans must adhere to the same standards as regular 401(k) plans. This can be time-consuming and cumbersome, especially for Howmet Aerospace employees who own a business and need to comply with these additional administrative duties ( Investopedia ).

Mandatory Employer Contributions  As a business owner, you must make a contribution every year you maintain the SIMPLE 401(k) plan, even if your business is underperforming. The options are limited to either a 2% nonelective contribution or a 3% matching contribution. Unlike SIMPLE IRAs, which allow flexibility in reducing the match in any two out of five years, SIMPLE 401(k) plans require the full contribution consistently ( Investopedia ) ( Kiplinger.com ).

Immediate Employee Vesting  Employees are 100% vested in all plan contributions and investment earnings from the start. This means they have full ownership of the contributions immediately, which might not incentivize them to stay with the company longer. For employers, particularly those with high turnover, this can be costly compared to traditional 401(k) plans that can have vesting schedules ( Investopedia ) ( Kiplinger.com ).

Lower Annual Contribution Limits  The annual contribution limits for SIMPLE 401(k) plans are lower compared to regular 401(k) plans. For 2024, the limit is $16,000 with an additional $3,500 catch-up contribution for those aged 50 or older. In contrast, the contribution limit for traditional 401(k) plans is $23,000 with a $7,500 catch-up contribution. This can be a disadvantage for highly compensated employees and business owners looking to save more aggressively for retirement ( Investopedia ) ( IRS ).

Elective Deferral Limits Across Multiple Plans  Employees participating in multiple retirement plans (e.g., 401(k), 403(b), SIMPLEs) must ensure their total elective deferrals do not exceed the overall limit set by the IRS, which is $23,000 for 2024 (plus allowable catch-up contributions). This includes deferrals to all these plans but excludes deferrals to Section 457(b) plans ( Investopedia ).

You Cannot Maintain Other Retirement Plans That Benefit Employees Eligible to Participate In the SIMPLE 401(K)

You can't maintain a SIMPLE 401(k) plan if, during any part of the calendar year, you maintain any other employer-sponsored retirement plan that benefits employees eligible to participate in the SIMPLE 401(k). Consequently, the SIMPLE 401(k) plan will not be appropriate if you want to maintain two or more retirement plans, or if you have groups of employees with different plan needs. Therefore, for Howmet Aerospace employees who own a business, it is important to plan ahead as to avoid conflicts between benefits.

You Must Determine In Advance the Type of Contribution You Will Make for the Year

Before the start of your plan year, If you work at Howmet Aerospace and own a business, you need to give your employees a 60-day election period to determine how much of their wages, if any, they wish to defer to the plan. Consequently, you need to advise employees of the type and amount of your contribution within a reasonable period of time before the 60-day election period. This generally means that you need to communicate with your employees at least 61 days before the beginning of the calendar year.

Early Withdrawals May Result In Significant Penalties

Distributions from a SIMPLE 401(k) are generally subject to the same distribution rules that apply to traditional 401(k) rules. So, if you make a withdrawal before age 59½ (55 in certain cases), you'll be subject to the 10% premature penalty tax (unless you meet one of the exceptions).

How Do You Establish A SIMPLE 401(K) Plan?

If You Currently Have A 401(K) Plan, You Can Adopt the SIMPLE 401(K) Provisions

The IRS has provided a model amendment that can be used to modify an existing 401(k) to function as a SIMPLE 401(k). This amendment, which is available in Rev. Proc. 97-9 in Cumulative Bulletin 1997-2, may be used only for plans that have been approved by the IRS. Furthermore, your plan must operate on a calendar year basis, not a fiscal year basis. Seek assistance from a retirement plan specialist.

If You Do Not Already Have A 401(K), Contact a Retirement Planning Specialist To Set Up A SIMPLE 401(K)

As with other types of retirement plans, the rules governing 401(k) plans generally require the expertise of a professional in the field of qualified benefit plans.

Follow the Reporting and Disclosure Requirements That Govern Traditional 401(K) Plans

Once you have established your SIMPLE 401(k) plan, you need to follow the annual reporting and disclosure requirements that govern traditional 401(k) plans. Consult a professional in the field of qualified benefit plans.

What Are The Federal Income Tax Considerations?

Employer Contributions to a SIMPLE 401(K) Can Be Deducted from Business Income

If you work at Howmet Aerospace and own a business, your business can deduct matching or nonelective employer contributions for the calendar year in which they are made. If you don't use a calendar year, contributions are deductible for the tax year that includes the end of the calendar year for which contributions are made.

SIMPLE 401(K) Accounts Grow Tax Deferred

Your matching or nonelective employer contributions and the employees' contributions are excludable by the employee for income tax purposes, and earnings on the contributions grow tax deferred. However, the employees' contributions (but not your matching or nonelective contributions) are subject to payroll taxes under the Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and Railroad Retirement Act.

You (Or Your Employees) May Be Assessed A Penalty for Early Withdrawal

Generally, employees are subject to the same penalties for early withdrawals from SIMPLE 401(k)s as they are for early withdrawals from traditional 401(k)s. Therefore, if you make a taxable withdrawal from your SIMPLE 401(k) before age 59½ (age 55 in certain cases), you may be subject to a 10% premature penalty tax (unless you meet an exception).

Your Business May Qualify for the Small Employer Pension Plan Start-Up Tax Credit

If you work at Howmet Aerospace and establish a new SIMPLE 401(k) plan, you may be eligible to receive a business tax credit for 50% of the qualified start-up costs to create or maintain the plan in three tax years. The credit may be claimed for qualified costs incurred in each of the three years starting with the tax year when the plan became effective. The amount of the credit is limited in each of the three years to $500 to $5,000, depending on the number of employees.

You or Your Employees May Qualify for the Tax Credit For IRAs And Retirement Plans

Some low- and middle-income taxpayers may claim a federal income tax credit ('Saver's Credit') for elective deferrals made to SIMPLE 401(k) plans and certain other employer-sponsored retirement plans.

Analogy:

Investing in your retirement is like planting a tree. Just as it takes time for a tree to grow and bear fruit, investing for retirement requires a long-term approach. You need to start early, choose the right investments, and tend to your portfolio over time to ensure it grows into a strong and fruitful retirement plan. With proper care and attention, your retirement portfolio can provide you with a bountiful harvest that will sustain you for years to come.

Questions & Answers

What Happens If You Exceed The 100-Employee Limit After Setting Up A SIMPLE 401(K)?

You have a two-year grace period after you exceed the limit. That is, you may continue to maintain the SIMPLE 401(k) plan for the two calendar years following the calendar year in which you last satisfied the 100-employee limit.

Example(s):   Smith and Sons, an architectural firm with 58 employees, set up a SIMPLE plan for its employees in 2016. The firm grew at a very rapid rate, and in 2017, the number of employees totaled 110. As a result, the next two years (2018-2019) were considered a grace period in which the firm could continue the SIMPLE plan. During those years, the firm employed 108 employees in 2018 and 95 employees in 2019. In 2020, Smith and Sons is allowed to continue to maintain a SIMPLE plan, because in the prior year (2019), the firm employed less than 100 employees.

If the failure to satisfy the 100-employee limitation is due to an acquisition, special rules may apply.

What Are the Eligibility Requirements for Employee Participation?

All employees who are age 21 or older and have completed one year of service with the employer must be eligible to participate. You may relax these requirements as long as you do so for all employees.

What Counts As Compensation for SIMPLE 401(K) Plan Contributions?

Compensation includes wages, tips, and other compensation that is subject to income tax withholding, plus any contributions that the employee makes to the SIMPLE plan. For self-employed persons, compensation means net earnings from self-employment before subtracting any contributions to the SIMPLE 401(k) on behalf of the self-employed individual. The compensation on which both the 2% nonelective contributions and the 3% matching contributions are made may not exceed $345,000 in 2024, up from $330,000 in 2023 ( Investopedia ) ( IRS ) ( Kiplinger.com ).

May an Employee Terminate Participation In The Salary Reduction Election Outside Of The Plan's Normal Election Period?

An employee may terminate participation in the salary reduction election at any time during the year. Your plan, however, may provide that an employee who terminates may not be allowed to resume participation until the next year.

How can Howmet Corporation employees ensure that they are maximizing their pension benefits under the Howmet Salaried Employees Pension Plan? Are there specific contributions or actions that could enhance their benefits over the years of their employment with Howmet Corporation?

Maximizing Pension Benefits: To maximize their pension benefits, Howmet Corporation employees should focus on accumulating years of service and ensuring they meet the eligibility criteria for the highest percentage of compensation credits under the pension plan. Employees should review their benefit statements regularly, especially considering how age and years of service affect their pension accrual. Consulting financial advisors or using Howmet's retirement planning tools can also aid in making strategic decisions about retirement timing and additional personal savings to complement their pension​(Howmet Corporation_July…).

In what situations might employees at Howmet Corporation find themselves ineligible for pension plan benefits? What steps should they take, if they suspect they fall into such categories, to clarify their eligibility status?

Ineligibility for Pension Benefits: Employees at Howmet Corporation might be ineligible for pension benefits if they are not classified as salaried employees hired before January 1, 2002, or if they leave the company before accruing sufficient vesting service (three years or more). If employees believe they fall into a category of ineligibility, they should contact the plan administrator or consult HR to clarify their status, especially regarding vesting service​(Howmet Corporation_July…).

Given the complexities of the Howmet Corporation Pension Plan, what resources are available for employees to understand their pension calculation, and how can they access such resources through Howmet Corporation?

Understanding Pension Calculation: Employees can access resources like the Your Benefits Resources (YBR) platform or call 1-888-ALCOA123 for assistance in calculating their pension benefits. These tools offer detailed projections and estimates based on individual account balances, years of service, and compensation, allowing employees to plan for retirement effectively​(Howmet Corporation_July…).

With the elder workforce approaching retirement, how does the Howmet Corporation Pension Plan accommodate early retirees, and what factors should employees consider when deciding the optimal time to retire?

Early Retirement Considerations: The Howmet Corporation Pension Plan allows early retirement starting at age 55, with a reduced benefit. Employees should weigh the impact of reduced payments against their financial needs and Social Security options. Additionally, delaying retirement can increase benefits significantly. Employees should use the available calculators and consult financial advisors to determine the optimal retirement age​(Howmet Corporation_July…).

What are the specific implications of the Internal Revenue Service (IRS) limitations for Howmet Corporation employees’ pension benefits, and how might these changes affect future retirement planning?

IRS Limitations and Future Planning: IRS limitations affect pension benefits by capping the maximum benefit amount that can be received, which for defined benefit plans is subject to annual adjustments. Employees nearing high compensation levels should consider how these caps might limit their pension payouts and integrate personal savings strategies, such as 401(k)s or IRAs, into their overall retirement plan​(Howmet Corporation_July…).

How does the Howmet Corporation Pension Plan protect employees' rights under ERISA, and what recourse exists for employees who believe their rights have been violated during the pension application process?

ERISA Protections: The Howmet Corporation Pension Plan is governed by the Employee Retirement Income Security Act (ERISA), ensuring that employees' rights are protected. If employees believe their rights have been violated during the pension application process, they can file a claim with the Benefits Management Committee and, if necessary, pursue an appeal or legal recourse under ERISA​(Howmet Corporation_July…).

For Howmet Corporation employees planning their estates, how essential is it to name beneficiaries in the pension plan, and what process should they follow to ensure that their beneficiaries are correctly registered?

Naming Beneficiaries: It is essential for Howmet Corporation employees to name beneficiaries for their pension plan, especially to ensure that survivor benefits are properly allocated. Employees can update beneficiary information through the YBR platform or by submitting the appropriate forms to HR. Spousal consent is required if designating a non-spouse beneficiary​(Howmet Corporation_July…).

Howmet Corporation employees often have questions regarding survivor benefits. What provisions does the Howmet Pension Plan have in place for surviving spouses, and how do these benefits differ based on the employee's marital status at retirement?

Survivor Benefits: The Howmet Pension Plan offers survivor benefits, which provide ongoing payments to a spouse or designated beneficiary. For married employees, the default option is a joint and survivor annuity, which ensures a percentage of benefits continues for the surviving spouse. Single employees can designate other beneficiaries, but should review their options carefully to ensure proper coverage​(Howmet Corporation_July…).

What are the essential milestones employees of Howmet Corporation should be aware of regarding vesting service under the pension plan, and how does this vesting impact their eventual payout?

Vesting Milestones: Employees become vested in the Howmet Pension Plan after completing three years of service or reaching age 65. Once vested, employees have a right to receive pension benefits even if they leave the company before retirement age. Knowing these milestones helps ensure employees fully benefit from their time at Howmet​(Howmet Corporation_July…).

If Howmet Corporation employees have further questions regarding their benefits as detailed in the document, what steps should they take to contact the plan administrator, and what information will they need to provide for personalized assistance?

Contacting the Plan Administrator: Employees with further questions about their pension benefits should contact the plan administrator through the YBR website or by calling 1-888-ALCOA123. Employees will need their Social Security number, date of birth, and user ID to access personalized assistance​(Howmet Corporation_July…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Pension Plan Information: Name of Pension Plan: Howmet Aerospace Pension Plan Years of Service and Age Qualification: Employees typically need to have a minimum of 5 years of service to qualify for the pension plan. The plan is available to employees who are 21 years old or older. Pension Formula: The pension benefit is calculated based on a formula that considers years of service and average salary during the highest-paid years. Specifics can vary, so it’s best to refer to the plan document for precise details. 401k Plan Information: Name of 401k Plan: Howmet Aerospace 401(k) Plan Qualifications: Employees are eligible to participate in the 401(k) plan immediately upon hire. The plan includes company matching contributions based on employee contributions. Details of the Plan: The Howmet Aerospace 401(k) Plan offers a range of investment options, and employees can contribute up to the maximum limit set by the IRS.
Restructuring and Layoffs: In early 2024, Howmet Aerospace announced a restructuring plan aimed at improving operational efficiency. This plan included layoffs impacting approximately 2% of their workforce. The restructuring is part of their broader strategy to streamline operations and enhance profitability in a challenging economic environment. The importance of addressing this news lies in its impact on employees and the company's operational effectiveness amid current economic uncertainties.
Howmet Aerospace provides stock options and RSUs to eligible employees as part of their compensation package. For 2022, 2023, and 2024, the company offers these benefits to key employees, executives, and directors. Specific plans and eligibility criteria are outlined in their annual reports and proxy statements.
Healthcare Terms/Acronyms: HSA (Health Savings Account): Offers tax-advantaged savings for healthcare expenses. FSA (Flexible Spending Account): Allows employees to set aside pre-tax income for eligible expenses. HDHP (High Deductible Health Plan): A health plan with lower premiums and higher deductibles. Health Benefits Overview: Howmet Aerospace provides comprehensive health insurance options including medical, dental, and vision coverage. They offer both HSA and FSA options, alongside a range of wellness programs. Additional benefits include employee assistance programs and telemedicine services.
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