Anonymous wrote:I love all the reactions from people saying "you should consider yourself lucky to have anything".

This is how the top 1 percent get their mits on 25 percent of the wealth. It is the sheep welcoming their fleecing.

Preach on!

This is 23:22 again...

One other thing I forgot. Contributions that the company makes on our behalf (the 10%) are not immediately vested, so that may make a difference. They are vested a little bit each year until you have been at the company 6 years -- at that point they are fully vested.

Hi this is the PP with the 401K plan we're analyzing (1/24 from 23:22).

Our plan gives everyone a contribution that's 10% of their salary, even if they contribute nothing. So yes, it's not officially a match since you get it regardless. I have heard anecdotally that some of the younger employees don't even contribute because they don't see the point of doing so when they could be contributing to an IRA where they have more investment choices (although I think our choices are fine). I don't know where the company stands in terms of HCE vs. non-HCEs contributions.

There are a lot of HCEs - I am pretty low on the totem pole and I make 120K. The company is more than 20K employees (consulting firm).

I am not understanding a lot of your lingo in terms of Safe Harbor, deferral %s and deferring -- could you use a little more plain English as you explain this? Thanks... and I really appreciate your thoughts here.

Anonymous wrote:This is so interesting! I didn't know that HCE's would be limited to less than the IRS annual limit if the plans failed to meet various tests.

As 23:22 asks in her last paragraph, could the company possibly meet the test (and thus HCE could contribute the IRS max) if they automatically contributed a large % of NHCE salaries to the plan?

Yes, and it's not even that large, especially if they're already doing a match or top-heavy contribution anyway. If the plan amends to a Safe Harbor Non-Elective 401k Plan, the owners could make a 3% fully vested contribution to all eligible employees and negate the need for any 401k testing.

They could possibly do it even cheaper by amending into a Safe Harbor Match 401k Plan, and then only the employees who defer into the 401k must receive the employer contribution - no need for that extra top heavy portion to the $0 contributors - and still it negates need for 401k testing.

This is so interesting! I didn't know that HCE's would be limited to less than the IRS annual limit if the plans failed to meet various tests.

As 23:22 asks in her last paragraph, could the company possibly meet the test (and thus HCE could contribute the IRS max) if they automatically contributed a large % of NHCE salaries to the plan?

Anonymous wrote:My company has a great match, but there is one quirk that makes be livid, and it has to do this with this wacky IRS rule about "highly compensated employees."

Maybe the PP who does this for work can comment on this?

First, an HCE is defined by IRS. You'd think HCE might equal 200K or 300K. Oh no, of course not! It's actually only around 115K. So at our company, if you are an HCE, you aren't allowed to contribute the IRS max to the 401K (think the max now is 16500). Instead, you are only allowed to contribute 10% of your salary. So when I made 90K, I could actually contribute more than I can now. Ridiculous.

So if you make about 120K as I do, you can only contribute 12K, instead of the IRS max of 16,5000. That means there's 4500 left on the table that I COULD be contributing but they won't let me. That makes me so mad, and over a career, that's hundreds of thousands of dollars in contributions and growth.

Why is this!?!?! Our plan has a match regardless of what you contribute. If you contribute 0, you still get the match. I have researched this a little, but it is complicated and I don't understand all of the details.

Am I right that if our company structured the plan differently, we would be able to contribute up to the IRS max even if we are HCEs? There's no way this would fly at a law firm where most make well over the HCE limit so I've got to think there's a way to fix this, but it would probably cost them more. And I don't get why they do it at our company (large consulting firm) where a lot of folks are HCEs. Any thoughts?

HCE's are being limited so the plan doesn't fail the 401k tests, thus avoiding refunds to make it pass. (HCEs can only defer an average of about 2% more than non-HCEs.) Since you only make $120K but defer a high % (so a lower paid HCE with a high deferral average), you'd probably be dinged for the refunds anyway, so one way or the other, you wouldn't be able to defer the max. Limiting deferral %'s is the old fashioned way to handle this.

The plan is probably top heavy (>60% of assets belong to key employees), which is why everyone eligible for the plan would have to get an employer contribution, even if they're not deferring - so it's not really a match, just an employer contribution to pass top heavy testing. I'm guessing the $0 contributors get 3% employer contribution, right? As far as the employees are concerned, it's not important what this contribution is called, but the reason I bring it up is because if it is for top heavy, then the employers would be better off looking at a Safe Harbor plan.

A Safe Harbor type plan is the different structure to which you refer. There are a couple of different kinds, but normally it's a 3% fully vested contribution to all eligible employees. It provides the top heavy (that they're already doing anyway) and it negates the need for any 401k testing, allowing HCEs then to defer the maximums without worry. They can even make it a "maybe" plan which allows them to choose annually whether they'll make it or not.

You said your company has a generous match now, is it over 5% of compensation? If so, making the switch to safe harbor would benefit the owners even more. It sounds like they've got a cookie-cutter plan or work with an old fashioned administrator, and it would behoove them to seek out a few recommendations for plan review. It could be set up so that they could contribute less dollars overall and receive more of the allocation to themselves.

But, here's where my morals kick in (or my jealousy, since I'm never been an HCE owner), switching to a safe harbor plan would benefit the non-owner HCEs by allowing higher deferrals, but there's a possible downside as well. When the owners find out they could potentially fully fund themselves (up to $55,500 each, per year) by depositing a measly 5% to each eligible non-owner employee, they may be swayed to cut to the minimums - which may be less than your now generous match. I work on about 200 plans, and off the top of my head, I can think of only 2 that have elected to contribute more than is required to pass testing. :/

Anonymous wrote:

Anonymous wrote:Time to look for a new job.

Yes, at which point you will discover that most places don't have a match at all and that you should consider yourself lucky, even if disappointed.

Even so, the match is part of OP's negotiated compensation. Decreasing the match is another way to say she's taking a paycut.

My company has a great match, but there is one quirk that makes be livid, and it has to do this with this wacky IRS rule about "highly compensated employees."

Maybe the PP who does this for work can comment on this?

First, an HCE is defined by IRS. You'd think HCE might equal 200K or 300K. Oh no, of course not! It's actually only around 115K. So at our company, if you are an HCE, you aren't allowed to contribute the IRS max to the 401K (think the max now is 16500). Instead, you are only allowed to contribute 10% of your salary. So when I made 90K, I could actually contribute more than I can now. Ridiculous.

So if you make about 120K as I do, you can only contribute 12K, instead of the IRS max of 16,5000. That means there's 4500 left on the table that I COULD be contributing but they won't let me. That makes me so mad, and over a career, that's hundreds of thousands of dollars in contributions and growth.

Why is this!?!?! Our plan has a match regardless of what you contribute. If you contribute 0, you still get the match. I have researched this a little, but it is complicated and I don't understand all of the details.

Am I right that if our company structured the plan differently, we would be able to contribute up to the IRS max even if we are HCEs? There's no way this would fly at a law firm where most make well over the HCE limit so I've got to think there's a way to fix this, but it would probably cost them more. And I don't get why they do it at our company (large consulting firm) where a lot of folks are HCEs. Any thoughts?

Anonymous wrote:You should ask, or get a group of employees to ask "why?" Many companies are reducing benefits because they can, which isn't a great reason. And employees are just saying, "okay," thinking that they need to for the company's well being, when in fact they are just enriching the owners/execs. This is part of the reason that income has been redistributed so dramatically over the past 20 years.

The book Retirement Heist, by Ellen Schultz, a wall street journal reporter, examines how over the past 20 years companies have lied to employees about why they are changing plans. The plans are often fully funded and NOT in trouble, but legislative changes have allowed companies and execs to manipulate plans to increase pay to themselves, and/or make corporate earnings projections for wall street analysts (thus keeping stock prices high which is also good for executive pay).
http://www.amazon.com/Retirement-Heist-Companies-Plunder-American/dp/B00AK3WCZ8/ref=sr_1_1?s=books&ie=UTF8&qid=1359058479&sr=1-1&keywords=retirement+heist

Employees have to stop being sheep and start to stand up to this crap.

This. Cross tested plans and safe harbor contributions were both implemented to allow highly compensated employees to save more and receive higher % contributions. Employees think how nice that the employer is giving me 5% when in reality he is giving you 5% so he can receive 15% + $22k in 401k.

I love all the reactions from people saying "you should consider yourself lucky to have anything".

This is how the top 1 percent get their mits on 25 percent of the wealth. It is the sheep welcoming their fleecing.

My employer matches up to 6% but my previous employer cut the match to half of 3% from full match 4%. Sorry OP it happens.

You should ask, or get a group of employees to ask "why?" Many companies are reducing benefits because they can, which isn't a great reason. And employees are just saying, "okay," thinking that they need to for the company's well being, when in fact they are just enriching the owners/execs. This is part of the reason that income has been redistributed so dramatically over the past 20 years.

The book Retirement Heist, by Ellen Schultz, a wall street journal reporter, examines how over the past 20 years companies have lied to employees about why they are changing plans. The plans are often fully funded and NOT in trouble, but legislative changes have allowed companies and execs to manipulate plans to increase pay to themselves, and/or make corporate earnings projections for wall street analysts (thus keeping stock prices high which is also good for executive pay).
http://www.amazon.com/Retirement-Heist-Companies-Plunder-American/dp/B00AK3WCZ8/ref=sr_1_1?s=books&ie=UTF8&qid=1359058479&sr=1-1&keywords=retirement+heist

Employees have to stop being sheep and start to stand up to this crap.

I get that you are more bummed at the potential change of management style re: the lace of notice/discussion. Is it possible that an unexpected changed forced them to make a decision quickly?
You could perhaps bring up your disappointment in lack of notice.
On the other hand, it may have been that they didn't feel the need to give you a heads up because it wasn't really something that was up for discussion--it was an absolute necessity and they didn't really have another option, other than layoffs. If that's the case, what's the point in dwelling on it months before it's going to happen?

You are luck you have a 401k. The majority of small business do not offer it.

Op here, I think I was just really surprised that a company that prides itself on practicing an "open book" management style sprung this on us in an email one week before it takes affect. This is a company that regularly pulses employees opinions and satisfaction and briefs all employees yearly on revenue and other financial issues.

We're a consulting company, so employment is always dependent on us having contracts. Layoffs have occurred and so have pay cuts if the only option you have for a project is on one that can't cover your labor category. That's come with the territory for several years now.

Again, I think it's more how quickly and without warning it happened. I worry that it's a sign of changing management style.