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Chapter 2. The Rules: Understanding Your... > Who Makes the 401(k) Rules? - Pg. 13

The Rules: Understanding Your 401(k) 13 Who Makes the 401(k) Rules? As we saw in Chapter 1, "What Is a 401(k)?" 401(k)s were created by an act of Congress. It's no surprise, then, to find the following players determining how 401(k) plans operate: · Internal Revenue Service (IRS)--They write the details of the law. · Department of Labor (DOL)--The people who have responsibility to make sure that employers abide by the laws. Terms to Know ERISA, the Employee Retire-ment Income Security Act of 1974, is the employee's version of the Bill of Rights when it comes to retirement benefits. It tells employers who want to offer protective shells to their employees what they can and cannot do. In simple terms, ERISA looks out for our interests. Together, ERISA and the IRS Code determine the rules for 401(k)s. · Securities and Exchange Commission (SEC)--The people who set the rules on when certain types of investments, such as mutual funds and company stock, are offered for purchase to employees. · Hired guns--The consultants, lawyers, and lobbyists who take supporting or opposing positions on what the IRS and DOL say and do. · Employers--They decide how to make sense of what the other four groups say is okay. Now, because almost all the people involved in creating and administering 401(k)s are lawyers, you might think that there is some kind of conspiracy-to-confuse going on. The reality is that 401(k)s have evolved over the past 20 years, in large part to be more responsive and fair to employees and employers. As a result, the laws that 401(k)s work under and the rules that you and I have to follow have evolved as well. Understanding Your Company's 401(k) The first step in understanding your 401(k) is to realize that not all 401(k)s operate the same. You see, 401(k)s are like automobiles. While they all have tires, doors, and engines, they're available in different colors, have different features, and are even promoted differently. But all 401(k)s get you where you want to go--retirement. ERISA and the IRS Code describe the general terms of how all 401(k)s operate. These two docu- ments tell your company's story: · Plan document--Every 401(k) has one. The law says so. This is the legal mumbo-jumbo that states the "whereases," "therefores," and "notwithstandings" of how your 401(k) operates. It's very detailed and contains legal information about your 401(k). In fact, the plan in plan docu- ment is why 401(k)s are called 401(k) plans. These documents make great bedtime reading because they'll put you right to sleep. That's why the law also requires that a summary of the plan document be provided to employees--this is the summary plan description.