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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
I am getting a check back from my employer because according to the IRS "the highly compensated derived a greater benefit than the non-highly compensated" and the company's 401k plan is subject to annual "discimination".
Does anyone know anything about this?
This is a total load of garbage if you ask me. And judging by the formula they use, highly compensated employees as a group cannot exceed the average contributions of non-highly compensated employees as a group by more than 2%.
So if the non-highly compensated employees in my company decide to put less towards their 401ks (maybe due to this recession), that means I may have to put less towards mine. That's rather stupid.
And I didn't go over the $15,500 401k limit either. I maxed it out, and now because I am getting a $680 refund from my job, I ended up not even maxing it.
Unless somebody can explain it better, this is pretty stupid.
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Posted 3/16/09 4:26 PM  |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
And with the market being as low as it is... this is the LAST time I would want any 401k contributions refunded to me.
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| Posted 3/16/09 4:31 PM |
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nrthshgrl
It goes fast. Pay attention.
Member since 7/05 57538 total posts
Name:
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Our company markets the 401(k) agressively to encourage lower paid employees to participate so it hasn't happened to us.
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| Posted 3/16/09 4:32 PM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
No didn't get anything like that.
What the heck?
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| Posted 3/16/09 4:33 PM |
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Kara
Now Zagat Rated!
Member since 3/07 13217 total posts
Name:
They call me "Tater Salad"
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Can your company really tell you that you cannot contribute up to the legal maximum into your 401(k)? That's insane.
That's never happened to me... and it makes absolutely no sense to me at all.
ETA -- Is some of your contribution in the form of company matching?
Matching or nonelective contributions. Under the terms of the QACA, you must make either matching or nonelective contributions according to the following terms.
Matching contributions.You must make matching contributions on behalf of each non-highly compensated employee in the following amounts.
An amount equal to 100% of elective deferrals, up to 1% of compensation.
An amount equal to 50% of elective deferrals, from 1% up to 6% of compensation.
Other formulas may be used as long as they are at least as favorable to non-highly compensated employees. The rate of matching contributions for highly compensated employees, including yourself, must not exceed the rates for non-highly compensated employees.
Nonelective contributions.You must make nonelective contributions on behalf of every non-highly compensated employee eligible to participate in the plan, regardless of whether they elected to participate, in an amount equal to at least 3% of their compensation.
From http://www.irs.gov/publications/p560/ch04.html
Message edited 3/16/2009 4:39:08 PM.
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| Posted 3/16/09 4:34 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
http://www.401khelpcenter.com/mpower/feature_030702.html
Here is a good link that better explains it.
The way companies get stuck with this is if they dont have enough of the non-highly compensated employees contributing (which I guess is the case of my company).
And the funny thing is... looking at the bottom of the link where it says ways of boosting non-HCE participation... I can't help but laugh at some of the suggestions because they are so true.
"Publicizing the plan more" - My company doesn't really do much in regards to this. I never see emails sent out promoting the plan
"Offering an employer match" - My company's match is very minimal. Again another flaw with the plan.
I'd almost want to put up a stink about this to some of the higher-ups here. Ask them why the lower compensated employees aren't contributing enough. But you know with this economy it's probably best to keep the mouth shut.
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| Posted 3/16/09 4:39 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by Kara
ETA -- Is some of your contribution in the form of company matching?
Not really. The match is less than 10% of what you put in.
I am probably getting screwed because as I said above, too many of the lower salaried employees are not contributing enough (or not contributing at all). And I think that's a flaw with the company, not the employee.
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| Posted 3/16/09 4:41 PM |
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Kara
Now Zagat Rated!
Member since 3/07 13217 total posts
Name:
They call me "Tater Salad"
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Thanks.
This is the most ridiculous thing I've ever heard. One more way our government creates disincentives for people who are successful.
Can someone PLEASE explain the motivation? The plan is still there for non-HCEs, so why should HCEs lose out on being able to contribute? Why should the HCEs be penalized for the failure of the non-HCEs to participate? How is it their fault?
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| Posted 3/16/09 4:44 PM |
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Kara
Now Zagat Rated!
Member since 3/07 13217 total posts
Name:
They call me "Tater Salad"
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by ave1024
Posted by Kara
ETA -- Is some of your contribution in the form of company matching?
Not really. The match is less than 10% of what you put in.
I am probably getting screwed because as I said above, too many of the lower salaried employees are not contributing enough (or not contributing at all). And I think that's a flaw with the company, not the employee.
I agree - you are getting screwed. This is insane, especially with the market now. I get that some non-HCE people feel they cannot afford to contribute now - they may need the cash... but forcing other people to pull money OUT of the market in response makes NO sense.
Some will have to explain the motivation behind this one. Punishing other EMPLOYEES for the fact that non-HCEs don't contribute enough makes zero sense to me.
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| Posted 3/16/09 4:46 PM |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by Kara
This is the most ridiculous thing I've ever heard. One more way our government creates disincentives for people who are successful.
Can someone PLEASE explain the motivation? The plan is still there for non-HCEs, so why should HCEs lose out on being able to contribute? Why should the HCEs be penalized for the failure of the non-HCEs to participate? How is it their fault?
My points exactly. I think because the 401k monies are pre-taxed appreciation, the IRS doesn't want all their funds going towards the "wealthy". 
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| Posted 3/16/09 4:46 PM |
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JessInCA
live laugh love
Member since 8/06 5082 total posts
Name:
Jess
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
I've never heard of such a thing!
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| Posted 3/16/09 6:17 PM |
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2girlsforme
LIF Adult
Member since 8/06 3071 total posts
Name:
XXXXXXXXX
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
This actually happened to my husband a few years ago. I was absolutely dumbfounded and didn't believe that such a regulation existed, until I read it for myself.
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| Posted 3/16/09 8:44 PM |
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alisha
LIF Adult
Member since 3/07 1199 total posts
Name:
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
This is why a lot of 401k plans are doing automatic enrollment - meaning someone has to opt out of a 401k. It increases the chances that non HCEs participate and the plan passes non-discrimination testing.
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| Posted 3/16/09 9:45 PM |
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dani731
Blessed!!!
Member since 1/08 3355 total posts
Name:
D
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
The 401K at my job has this rule also. It is actually quite common. The year before last year my job also implemented the auto enrollment. If you dont want to participate in the 401k, you have to sign & return a paper to opt out. if you don't return the paper you are automaticaaly enrolled for 3%
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| Posted 3/16/09 10:15 PM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
its happened where I work.
We have a large staff of young employees (bank tellers, etc) who don't contribute to the 401k, so almost every year people get checks back. it sux!
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| Posted 3/17/09 8:16 AM |
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k-diggity
stay classy.......
Member since 6/08 1332 total posts
Name:
: )
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
wow I never heard of this- it sounds completely unfair
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| Posted 3/17/09 9:00 AM |
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Kara
Now Zagat Rated!
Member since 3/07 13217 total posts
Name:
They call me "Tater Salad"
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by dani731
The 401K at my job has this rule also. It is actually quite common. The year before last year my job also implemented the auto enrollment. If you dont want to participate in the 401k, you have to sign & return a paper to opt out. if you don't return the paper you are automaticaaly enrolled for 3%
ALL 401(k)s are subject to this regulation.
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| Posted 3/17/09 9:04 AM |
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MikesCutie
May 26, 2007
Member since 12/07 1478 total posts
Name:
Marianne
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
It happens in my company but not to me. One woman in particular gets a large chunk of change back every year because not enough people participate here. The company doesn't match any of your contributions so a lot of people think it's a waste.
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| Posted 3/17/09 9:35 AM |
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2girlsforme
LIF Adult
Member since 8/06 3071 total posts
Name:
XXXXXXXXX
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by Kara
Posted by dani731
The 401K at my job has this rule also. It is actually quite common. The year before last year my job also implemented the auto enrollment. If you dont want to participate in the 401k, you have to sign & return a paper to opt out. if you don't return the paper you are automaticaaly enrolled for 3%
ALL 401(k)s are subject to this regulation.
My understanding is that they are. I remember both my husband's employer and our accountant, providing us with an IRS ruling.
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| Posted 3/17/09 10:39 AM |
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nrthshgrl
It goes fast. Pay attention.
Member since 7/05 57538 total posts
Name:
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by Kara
Posted by dani731
The 401K at my job has this rule also. It is actually quite common. The year before last year my job also implemented the auto enrollment. If you dont want to participate in the 401k, you have to sign & return a paper to opt out. if you don't return the paper you are automaticaaly enrolled for 3%
ALL 401(k)s are subject to this regulation.
I believe she was referring to the auto-enrollment. Not all companies auto-enroll employees.
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| Posted 3/17/09 11:31 AM |
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MarathonKnitter
HAPPY
Member since 2/07 17374 total posts
Name:
EMBRACING CHANGE
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
this is part of what i do at work!
the company i work for takes care of employer sponsored retirement plans.
just like we have to file our taxes, plans also have to file paperwork. we file 1040, they file 5500. just like we have a tax season, plans have a compliance season... which is now.
i'm sorry that you had to get your money back. but for the plan as a whole to continue, they need to follow some of the supidest math i have ever seen.
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| Posted 3/17/09 11:50 AM |
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smdl
I love Gary too..on a plate!
Member since 5/06 32461 total posts
Name:
me
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
I have never heard of that.
Is it your company policy? I have never heard of that anywhere else.
As long as you don't contribute more than what the Government allows you per year, I don't see why it's a company's business to worry about who has a 401K and who does not. Who wants to save and who does not?
I find it to be ethically wrong.
A 401K is a retirement plan. Not subject to a company's ruling. The Laws are not set by a company. They should allow you to contribute what the maximum allowance is allowed by the Government.
I would look into that on a legal aspect.
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| Posted 3/17/09 12:00 PM |
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MarathonKnitter
HAPPY
Member since 2/07 17374 total posts
Name:
EMBRACING CHANGE
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by smdl
Not subject to a company's ruling. The Laws are not set by a company. They should allow you to contribute what the maximum allowance is allowed by the Government.
I would look into that on a legal aspect.
it's not subject to the company. the IRS forced her employer to give her the money back. if her employer doesn't, THEY are then responsible for a crazy penalty and tax on that amount for EVERY DAY they are out of compliance.
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| Posted 3/17/09 12:30 PM |
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Michelle
My Little Yankee Fans
Member since 1/06 4018 total posts
Name:
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
It is not unethical or illegal, and not a company policy. Every plan is subject to this.
It is set up as an incentive for the higer ups to make it easier for the non higher ups to contribute and to offer better matching, change the vesting rules and when they are eligible. It stinks when you are stuck in the middle, not a higher up with control and contributing.
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| Posted 3/17/09 12:32 PM |
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CrankyPants
I'm cranky
Member since 7/06 18178 total posts
Name:
Mama Cranky
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Re: Did anyone here get 401k money refunded to them because they failed the "highly compensated employee test" ????
Posted by Michelle
It is not unethical or illegal, and not a company policy. Every plan is subject to this.
It is set up as an incentive for the higer ups to make it easier for the non higher ups to contribute and to offer better matching, change the vesting rules and when they are eligible. It stinks when you are stuck in the middle, not a higher up with control and contributing.
I concur-it's and anti-discrimination rule that is supposed to ensure that companies do not start retirement plans that only wealthy employees can participate in and to motivate firms to advertise and market their plan to lower paid associates.
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| Posted 3/17/09 12:42 PM |
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