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    How to Decipher Your 401(k) Plan Statement

    by AAII Staff

    The fun part about a 401(k) plan is watching it grow over time. But that can easily turn into a frustrating exercise if you don't understand your retirement plan statement.

    Although your employer is required to provide you with a plan statement, there is no standardized form—most, in fact, are quite different. However, Figure 1 (see bottom of page) gives you an idea of some of the information that may be included.

    The statement in Figure 1 is divided into several sections: activity this period, current contributions allocation, and a summary of contributions.

    Activity

    For most participants, the first section describing activity during the most recent period is the most relevant.

    In the example in Figure 1, account activity is detailed for three different investments-one money market fund, one company stock fund, and one index fund. The last column totals the figures for all of the funds in the plan in which this participant is invested.

    The opening balance at the top of the account activity section and the closing balance at the bottom provide the market value of the employee's investments at the opening and closing day of the statement period. In between these two balances, the statement describes how the participant went from the opening balance to the closing balance:

    • Contributions: Dollar amounts contributed to each of the funds, usually listed by the source—either the employee or the employer are listed. Some statements may break down these contributions even further, for instance employer-matched contributions.
    • Loan activity: Some companies allow participants to borrow limited amounts from their plan—if this has occurred, those transactions are detailed here. This can include repayments for outstanding loans, interest payments on the outstanding loan, and/or loan withdrawals.
    • Transactions: These include fund exchanges—transferring assets from one investment to another within the plan; transfers/rollovers—assets that are either rolled over or transferred into the plan from a different trustee or a different plan or trustee; and withdrawals—assets that are withdrawn from the account.
    • Dividends and Capital Gains: Dividends, interest income, and capital gains paid to and reinvested in the account.
    • Market Gain/Loss: The change in the market value of the investments during the period covered by the statement.

    The closing balance in the last column is the total value of the participant's 401(k) plan—the "account value" noted at the top of the statement. However, this value is not necessarily the current bottom line real value to the participant.

    Vested Value: The Real Bottom Line

    Two other factors affect the real value of your plan:

    • Outstanding loans, and
    • Vesting.

    If you have borrowed money from your 401(k) plan, those monies must be repaid. The closing balance on your statement most likely will include the monies owed to the plan. A "net of loans" figure states the closing balance less all outstanding loans to the participant and represents dollars that are actually currently invested in the various funds of the plan.

    Vesting requirements also affect your real bottom line value. Many 401(k) plans have vesting requirements for monies contributed by the employer. Vesting is the right an employee gradually acquires to receive employer-contributed benefits, and it is based on the length of time he is employed by the company.

    The amount by which you are vested in a plan represents the percentage of employer-contributed assets to which you would be entitled if you were to leave the company at this particular point in time. For instance, if you are 100% vested and you leave your company, you have the right to all (100%) of the value of the assets represented by contributions made by the employer into the 401(k) plan; if you are 90% vested and you were to leave the company, you would receive 90% of the value of the assets represented by those contributions. Of course, if you remain with the company, you would eventually become fully vested.

    You are always 100% vested in any money that you, the employee, contribute to the plan.

    While many plans have vesting requirements on employer contributions, some have immediate full vesting. If this is the case, a vested value line may not appear on the statement. If in doubt, check with your plan administrator.

    The last line of the activity section in Figure 1 notes the vested value of this participant's plan. This amount is lower than the closing balance value, which means that this participant is not yet fully vested. If she were to leave the company at the end of this statement period, the amount she would be entitled to is $7,325.58.

    The vested value is the true value of the plan to the participant at this point in time.

    Other Statement Information

    The sample statement contains two other sections:

    • The current contributions allocation states how you are currently allocating employee and employer contributions among the plan's investment options.
    • The summary of contributions provides the current value of the contributions that have been made by the employee and the employer.

    Figure 1. 401(k) Plan Statements: An Example
    ACCOUNT VALUE: $7,793.17
    Activity This Period
      Money Market Fund Company Stock Fund Index Fund TOTAL
    Opening Balance $523.00 2,863.24 $4,250.46 $7,636.70
    Shares/Units 523.000 280.435 101.540  
    Share/Unit Price $1.00 $10.21 $41.86  
    Contributions        
    Employee Pre-Tax Basic     $238.01 $238.01
    Employer     $238.01 $238.01
    Total Contributions $476.02 $476.02
    Loan Payments $0.00 $0.00 $0.00 $0.00
    Loan Interest $0.00 $0.00 $0.00 $0.00
    Transfers/Rollovers In $0.00 $0.00 $0.00 $0.00
    Transfers/Rollovers Out $0.00 $0.00 $0.00 $0.00
    Loan Withdrawls $0.00 $0.00 $0.00 $0.00
    Fee Withdrawls $0.00 $0.00 $0.00 $0.00
    Dividend and Capital Gains $19.87 $19.37 $22.34 $61.58
    Market Gain/Loss $0.00 $375.79- $5.34- $381.13-
    CLOSING BALANCE $542.87 $2,506.82 $4,743.48 $7,793.17
    SHARES/UNITS 542.870 284.866 113.453  
    SHARE/UNIT PRICE $1.00 8.80 41.81  
    COMPANY STOCK PRICE   34.63    
    APPROXIMATE STOCK SHARES   72.40    
    NET OF LOAN(S)       $7,793.17
    VESTED VALUE       $7,325.58
    Current Contributions Allocation
    Index Fund
     
    Employee
    100.0%
    Employer
    100.0%
    Summary of Contributions
    SOURCE YEAR TO DATE CURRENT VALUE
    Employee Pre-Tax Basic $476.02 $2,856.12
    Employer $476.02 $2,856.12
    Employee Rollover $.00 $2,080.93
    TOTAL $952.04 $7,793.17