401k Max (rant)

[Brovane]

OP, you have to convince the great unwashed to contribute more to the 401k plan. Maybe your company can sweeten the match. My experience is that you can't even lead the horse to water. We sat down and showed employees that if they contributed, got the match, and then immediately cashed out, paying the penalty, they would still come out ahead. Some employees just saw the 401k as a way the company was trying to "steal their money". Note that this plan did not invest any 401k funds in company stock.

I personally think it is Pension. With that people have less of a reason to contribute the 401k. I understand what you are saying about convincing people to invest money in their future. Trying to discuss compound interest makes their eyes glaze over.

 

[Sho'Nuff]

(rant on)
Who here is actually able to max out their 401k? I am not talking % I am talking the 17,500 dollar a year max. I haven't been able to get anywhere near the 401k dollar maximum for years now for my 401k because I am told by my HR I have been designated a "highly compensated employee" by the IRS so I can only contribute 6%. I have been tagged as this since 2005. As if making six figures in Southern California makes you highly compensated. No this isn't a brag thread. I just don't understand that all these website talk about retirement and maxing out your 401k, catch up contributions, etc, etc but leave out any discussion about having your contribution % limited by being designated a "highly compensated employee".
(rant off)

I have maxed out my 401k every year for the past 8 years. The last few years I have had to reduce my weekly contributions (which are a percentage of income) so that I don;t hit the cap in October.

The issue in your case is that your company apparently has a lot of non-highly compensated employees, and a large percentage of those employees do not contribute a large percentage to their 401k.

 

[rcpratt]

Yeah, if the company was smart they'd start watering down the pension and boost 401(k) visibility and match.

 

[Sho'Nuff]

My understanding of HCE is the discrepancy between the high earners and low earners at your company is too big.

It's no big deal, just invest on your own. Your company sponsored 401(k) isn't your only way of saving money for retirement.

Yes but it is one of the best options, and one of the few tax deferred options for people who make a good living.

 

[Sho'Nuff]

Yet somehow Romney gets a 100+ Million into a IRA. :whiste:

Irritates me when I see these articles talking about 401k limits being raised and how nice it is. Who can actually take advantage of that? It would seem that as soon as you start making enough money to take advantage of this new 401k limits you get hit with the "highly compensated employee" designation.

It depends more on the overall makeup of your company than on your compensation specifically. Your company has 20k+ employees, but most of them probably make less than 50k a year. So there is a significant margin of difference between the HCE and NHCE's. Because the NHCE's are not contributing much to 401k (they contribute to the pension and probably 6% to 401k to get the match), the HCE's are limited to that same contribution because the difference between NHCE and HCE contributions to 401k can't be significantly different (per http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Definitions)

In my law firm we have 15 attorneys and 11 support staff. All attorneys are paid over 100k, and support staff are somewhat less. But the firm incentivizes 401k contributions to the max by all employees vis a vis a match. That way all employees (including the highly paid lawyers) can contribute the max to the 401k.

 

[Exterous]

Trying to discuss compound interest makes their eyes glaze over.

I think actual numerical examples with bar graphs help. Don't forget to show that their take home reduction is less than their contribution and be sure to reference the employee match as 'free money'

 

[WackyDan]

My wife has been in that situation for 10 years. She was only able to put in around 10% before she hit the High Income Earner watermark on her 401k. She had coworkers that had checks sent back to them for $10,000 or more that they owed taxes on because of the rule.

Not only are you punished for making too much money. You are doubly punished for trying to save it. It's bullshit.

There are other investment vehicles for you. Individual ROTH, etc. I know, it is easier to manage a single 401k... I get that, but the reason for the limit is to prevent employee from using their 401k as a tax shelter on a very good year. I'm not saying I agree with that, but that is probably a good reason why.

 

[Brovane]

Yeah, if the company was smart they'd start watering down the pension and boost 401(k) visibility and match.

All things being equal I would rather have the pension since we don't have to contribute to it.

 

[BoomerD]

All things being equal I would rather have the pension since we don't have to contribute to it.

Well...you do...sort of. It might not come out of your "earnings," but it DOES come out of your pay...one way or another. (or at least is calculated into your total compensation package)
Having worked union construction most of my life, pension contributions were made with money we allocated from contracted pay raises.
(get $1.00/hr raise this year, $0.50 went to health benefits,$0.30 to pension, $0.20 to wages...or something similar)

 

[Coulrophobia]

I am in the same situation with my 403b, I'd like to max it out but can't. Though with the company match it goes near 40k per year.

 

[Brovane]

Well...you do...sort of. It might not come out of your "earnings," but it DOES come out of your pay...one way or another. (or at least is calculated into your total compensation package)
Having worked union construction most of my life, pension contributions were made with money we allocated from contracted pay raises.
(get $1.00/hr raise this year, $0.50 went to health benefits,$0.30 to pension, $0.20 to wages...or something similar)

Now you are ruining my delusion that it is free money.........

Yeah it does come out someplace. We have a online tool on the internal HR website that it will show you your total comp and how much value the Pension is. I think they had a problem with people complaining or compensation was lower than other companies. Of course it is lower but does that company have the same benefits.

 

[PowerEngineer]

That is what I have been doing. The only thing that makes me un-easy is that the money is essentially un-secured debt for my employer. So if my employer goes under I could potentially loose the deferrend income. Not saying it is going to happen but it feels different for me compared to my 401k money which is in my name. I am probably being to paranoid. The guaranteed returns are nice.

I think it's a good idea to be using this option. You're right that being an unsecured debt makes it somewhat risky, but certainly some thing that upper management will try hard to protect assuming they're putting money into it too. Of course, your judgment on the long term viability of your employer and the interest rate paid are key factors. Certainly something that should find a place in your array of diversified investments.

 

[Exterous]

I am in the same situation with my 403b, I'd like to max it out but can't. Though with the company match it goes near 40k per year.

$40k per year? Given that they have the same limits that means your company is contributing $23,000+ each year.

 

[Coulrophobia]

Yeah its like a 2 to 1 match, pretty sweet deal. Max is like 52k from your contribution and employers I think.

 

[Rakehellion]

Invest in something else.

 

[Brovane]

I think it's a good idea to be using this option. You're right that being an unsecured debt makes it somewhat risky, but certainly some thing that upper management will try hard to protect assuming they're putting money into it too. Of course, your judgment on the long term viability of your employer and the interest rate paid are key factors. Certainly something that should find a place in your array of diversified investments.

That for also makes it less risky. Since my deferred compensation is sitting in the same pool with other senior execs. Of course maybe their is a separate senior exec pool? I think it very much has a place just keep aware of the risks.

 

[Engineer]

Yes, all employees are limited to the cap. But, they are not limited to something less than that if the company satisfies one of the safe harbor rules. In order to do that, though, they company has to contribute more match.

Ah, gotcha. So my former cheap ass company was the cause! Good to know!

 

[CPA]

Ah, gotcha. So my former cheap ass company was the cause! Good to know!

Bingo! One of the safe harbor exceptions is 100% match on the first 3% and 50% match on the next 2%. The OP's company does not satisfy this exception criteria, so they have to limit high-earners contributions. Probably the same case with your former company.

 

[Engineer]

Bingo! One of the safe harbor exceptions is 100% match on the first 3% and 50% match on the next 2%. The OP's company does not satisfy this exception criteria, so they have to limit high-earners contributions. Probably the same case with your former company.

50% match on the first 6% at the time and then dropped to ZERO from 2008-2010. I was let go when the plant closed in March 2010 so I don't know anything past that.

I know that about 70% of my contributions were sent back and I was told that I could only contribute 2% more than the AVERAGE person in the company contributed (so if they contributed 3%, I could do 5%).