A Qualified Plan in 401(k) industry is a retirement plan that meets the requirements established by the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA), thereby qualifying for favorable tax treatment. Such plans are designed to offer retirement savings opportunities to employees through their employer.
To be “qualified,” a plan must satisfy various rules regarding participation, vesting, benefit accrual, funding, and the non-discrimination requirements to ensure that the plan benefits all employees, not just highly compensated employees or executives.
A 401(k) plan is a common type of qualified plan, which allows employees to save and invest a portion of their paycheck before taxes are taken out. Employers may match contributions to some degree, and these contributions are tax-deferred until they are withdrawn during retirement. There are annual contribution limits, and penalties may apply for early withdrawal. Qualified plans like 401(k)s are regulated by the IRS and the Department of Labor.