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Employer holding back part of their 401K contribution ???
Old 05-05-2011, 01:21 PM   #1
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Employer holding back part of their 401K contribution ???

I have never heard of this before but it has me kind of steamed. My employer has a policy of a 3.5% match on my yearly gross salary so long as I am contributing at least 6%. I max out my 401K and the over 55 catch up each year.

Problem is the employer will only put in the 3.5% for each pay period I contribute at least 6% and they stop contributing their 3.5% once I hit the $16,500 401K max limit. After that they quit putting their 3.5% into my account then the following year in late April they fund their shortfall into my 401K account.

Problem is compounded if I really sock the 401k contribution away ahead of schedule, or in the case the last two years we get a sizable bonus in April of which they also fund your 401K contribution from it. Last year I was maxed on the 401K by August and I will likely be maxed on the 401K by end of July.

Not a huge deal but by the end of last year they had held back about $1,600 of their 401K contribution and didn't put it back into my account until just last week. Every year they are using my money and on top of that I lost out on any earning that money should have made.

When I complained about losing the earnings that money should have made they said along the lines "well if the market went down we would have paid you the full amount anyway". I responded "well if I didn't think that year in and year out the market would be up more than it is down I wouldn't be investing in it in the first place, you are making money off my money."

Is this legal for the company to be doing this? If it is, it is definitely not ethical in my opinion.
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Old 05-05-2011, 01:27 PM   #2
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Actually, I'm impressed that your company gives you the shortfall in the following year. With my company, once you quit contributing, they quit matching, so I just make sure I tweak my contribution rate throughout the year so that I hit $16,500 during the last pay period of the year. It's annoying, but I don't know what else to do.

Now my previous employer would give us 4% to the 401k, whether we contributed or not. That was pretty sweet, as we didn't have to worry about hitting the federal limit too early.
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Old 05-05-2011, 02:01 PM   #3
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Like you, I get no match if I max out before the end of the year, so I carefully calculate my % contribution (I say carefully, because I get two bonuses a year which vary in mount) so it hits the max on my last paycheck.
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Old 05-05-2011, 02:14 PM   #4
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I have never heard of this before but it has me kind of steamed. My employer has a policy of a 3.5% match on my yearly gross salary so long as I am contributing at least 6%. I max out my 401K and the over 55 catch up each year.

Problem is the employer will only put in the 3.5% for each pay period I contribute at least 6% and they stop contributing their 3.5% once I hit the $16,500 401K max limit. After that they quit putting their 3.5% into my account then the following year in late April they fund their shortfall into my 401K account.

Problem is compounded if I really sock the 401k contribution away ahead of schedule, or in the case the last two years we get a sizable bonus in April of which they also fund your 401K contribution from it. Last year I was maxed on the 401K by August and I will likely be maxed on the 401K by end of July.

Not a huge deal but by the end of last year they had held back about $1,600 of their 401K contribution and didn't put it back into my account until just last week. Every year they are using my money and on top of that I lost out on any earning that money should have made.

When I complained about losing the earnings that money should have made they said along the lines "well if the market went down we would have paid you the full amount anyway". I responded "well if I didn't think that year in and year out the market would be up more than it is down I wouldn't be investing in it in the first place, you are making money off my money."

Is this legal for the company to be doing this? If it is, it is definitely not ethical in my opinion.
As far as I know - they all stop contributing when you do (payroll is set up that way). 3 1/2% is a match to payroll contributions. Not too many people are aware of this, as they don't max out their contributions. I had a similar situation happen at two companies where I maxed out the regular contributions early and they didn't set up their computers for the 50+ additional contribution. Needless to say - I did not get the missed contributions when they straightened it all out. What you have to do is shoot for maxing out your contributions at the very end of the year. It's fairly straight forward when you are on a level salary, but throw in bonuses and departmental overrides and it can get interesting....
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Old 05-05-2011, 02:40 PM   #5
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Like others have said... if you are not making payroll deductions you are not getting a match... current company does not make it up either..

PS... the match is based on the 6%, so putting in more does not get you more early...


Instead of being 'mad' that you get it late the next year, be happy that you get it at all....
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Old 05-05-2011, 02:53 PM   #6
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I agree with all of the above; 401k match is highly regulated and it can be difficult for any employer to stay within the law. I'd bet your employer is within the law and, like so many above, should be appreciative of the match. I think you have a good program!
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Old 05-05-2011, 02:56 PM   #7
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I'm with the rest of the respondents. Back when my former employer matched up to 6% (before eliminating the match completely), it was only matched when you contribute, so you had to make sure not to max out your 401k before year end. It was particularly tricky at that company because the annual bonus would get awarded in December after it was too late to change your 401k contributions. So I would have to estimate my bonus so that I could get the 6% match on it, then get the 6% match on my final Dec 31 paycheck too. I risked not getting the full $16,500 contributed in total for the year, but I didn't want to leave any 6% match on the table. So consider yourself lucky that they eventually give you that 3.5% match on your salary.
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Old 05-05-2011, 03:38 PM   #8
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My former employer did the same thing. When I left earlier this year, they hadn't contributed the shortfall yet, and I asked if they would. They said no, since I was no longer and employee, but then they did. So now I wonder if they will next April for this year, since I really socked it away (75%) before I left. I haven't rolled over my 401K yet. I'm going to do a partial rollover to leave the account open in case they fund the 2011 shortfall next April.

Bottom line, yours isn't the only company to do this. I actually viewed this as a good thing that the company made sure I got the full match when I front loaded my 401K the way I did, even though it comes later. I suppose it's all perspective. As others have said, the best way is to contribute evenly throughout the year, if you can.
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Old 05-05-2011, 04:31 PM   #9
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Federal employees under FERS have the same restrictions on matching contributions. Part of my retirement planning activities was making SURE that I didn't gyp myself out of part of the match.

Those under CSRS get no match at all, though, so I considered myself to be fortunate.
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Old 05-05-2011, 05:47 PM   #10
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I did not realize so many had to work the system to maximize the company match. It never used to be a problem with my employer, but changing from in-house check processing to a third party payroll seems to be what created the problem.

I will just have to manipulate the system to maximize the company contribution each year. Unfortunately, when you have the $5,500 catch after the $16,500 is reached, I will always have at least some carryover.

I think the company should have at least given the employees a heads up, and anexplanation on how to minimize the impact.
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Old 05-05-2011, 06:45 PM   #11
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I did not realize so many had to work the system to maximize the company match. It never used to be a problem with my employer, but changing from in-house check processing to a third party payroll seems to be what created the problem.

I will just have to manipulate the system to maximize the company contribution each year. Unfortunately, when you have the $5,500 catch after the $16,500 is reached, I will always have at least some carryover.

I think the company should have at least given the employees a heads up, and anexplanation on how to minimize the impact.
In our system, I had to spread both the $16,500 and the $5,500 catchup over the number of pay periods in the year. I couldn't just pay the regular contribution first and the catchup after that, or I would not have got my match.

So, for example, there were 23 pay periods before my planned retirement date in 2009 and for every pay period I contributed $720 to the TSP and $240 to catchup that year.

720*23 = 16,560
240*23 = 5,520

So, the last paycheck had only 660 withheld for TSP (which was still enough to get the match) and 220 for over-50. And heaven forbid if I had changed my retirement date!
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Old 05-05-2011, 07:44 PM   #12
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I have always adjusted my 401K mid-year/after bonus to be sure I would get my full match. We received a notice last year that we would no longer have to do that. We were also told our plan was switching to a "safe harbor" plan and I am pretty sure the two are related. This probably explains why some 401Ks do true-ups and some don't.

Anyway, now if we reach the before-tax limit before the end of the year, we will still get the max company match. At the end of the year they will determine our “actual contribution rate” for the year by dividing total contribution by total compensation. This will then be used to calculate the total company match we are entitled to and do a "true-up".

For example, if I contribute 1% of my total annual compensation, they will give me 1% of my annual total compensation. If I contribute 5% of my total annual compensation, they will give me 3% of my total annual compensation, etc. The key here is total annual compensation....which they don't know until the end of the year. My guess is your company does the same thing, which is why you don't see it until April of the following year.

I still adjust my 401K mid-year anyway..... Seems easier for me and I have just gottten used to doing it.
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Old 05-06-2011, 06:00 AM   #13
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In our system, I had to spread both the $16,500 and the $5,500 catchup over the number of pay periods in the year. I couldn't just pay the regular contribution first and the catchup after that, or I would not have got my match.

So, for example, there were 23 pay periods before my planned retirement date in 2009 and for every pay period I contributed $720 to the TSP and $240 to catchup that year.

720*23 = 16,560
240*23 = 5,520

So, the last paycheck had only 660 withheld for TSP (which was still enough to get the match) and 220 for over-50. And heaven forbid if I had changed my retirement date!
I wish we could do it this way, I am told the I can't allocate part of each pay period contribution for the 401K contribution and part to the catchup that year. The first $16,500 goes to my 401K contribution and when reached they quit putting in their match. So the last several months of the year, while there is still time to contribute the catch up, I receive no company match. Sort of a Catch 22.
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Old 05-06-2011, 06:06 AM   #14
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I have always adjusted my 401K mid-year/after bonus to be sure I would get my full match. We received a notice last year that we would no longer have to do that. We were also told our plan was switching to a "safe harbor" plan and I am pretty sure the two are related. This probably explains why some 401Ks do true-ups and some don't.

Anyway, now if we reach the before-tax limit before the end of the year, we will still get the max company match. At the end of the year they will determine our “actual contribution rate” for the year by dividing total contribution by total compensation. This will then be used to calculate the total company match we are entitled to and do a "true-up".

For example, if I contribute 1% of my total annual compensation, they will give me 1% of my annual total compensation. If I contribute 5% of my total annual compensation, they will give me 3% of my total annual compensation, etc. The key here is total annual compensation....which they don't know until the end of the year. My guess is your company does the same thing, which is why you don't see it until April of the following year.

I still adjust my 401K mid-year anyway..... Seems easier for me and I have just gottten used to doing it.
Thanks KM, we do have the safe harbor and your program sounds like ours with the true-up. I just wish they would educate the employees how to maximize the company match during the year without waiting for a big % of their contribution to be deposited via a true up the following year. Now that I understand the rules a little better I will try to figure out how to manage it to maximize their contribution.
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Old 05-06-2011, 07:34 AM   #15
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I just wish they would educate the employees how to maximize the company match during the year without waiting for a big % of their contribution to be deposited via a true up the following year.
True but the employer should probably start by educating the ~50% of employees that don't even contribute enough to get the match versus the 1% of employees that might miss out on the match because they contribute too much (you and me). We are already so far ahead of the game!
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Old 05-06-2011, 10:12 AM   #16
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I wish we could do it this way, I am told the I can't allocate part of each pay period contribution for the 401K contribution and part to the catchup that year. The first $16,500 goes to my 401K contribution and when reached they quit putting in their match. So the last several months of the year, while there is still time to contribute the catch up, I receive no company match. Sort of a Catch 22.
This just sound wrong.... (not that what you said is wrong... just that it is wrong to do it this way)...
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Old 05-06-2011, 11:30 AM   #17
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I wish we could do it this way, I am told the I can't allocate part of each pay period contribution for the 401K contribution and part to the catchup that year. The first $16,500 goes to my 401K contribution and when reached they quit putting in their match. So the last several months of the year, while there is still time to contribute the catch up, I receive no company match. Sort of a Catch 22.
Can you change the amount you allocate each month during the year? If so, you could spread the 16500 over 12 months and put the catch up all in in December.
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Old 05-06-2011, 12:47 PM   #18
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Can you change the amount you allocate each month during the year? If so, you could spread the 16500 over 12 months and put the catch up all in in December.
Yes, I can change the % of my income that I contribute to the 401K each pay period. However, I have that $5,500 nut that will be contributed at the end with no match. The best way to maximize the amount my employer contributes in the same calendar year is to basically end up with no take home pay the last month or so of the year, and all of that going towards the catch-up. Not the most comfortable way to get my employer to pay up about $600 - $700 they owe me in the same calendar year. But I see no other way around it. They already told me if I contribute towards the catch up, I will always have some amount of "True-Up the following year.

This year it is already too late because I am only about $3000 away from maxing out the $16,500. But next year I will not max out until I absolutely have to, plus still have time to get in the catch-up.
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Old 05-06-2011, 01:02 PM   #19
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This just sound wrong.... (not that what you said is wrong... just that it is wrong to do it this way)...
Sounds like age discrimination to me.
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Old 05-06-2011, 02:42 PM   #20
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Good info. I've been carefully balancing DW's 401k contributions to catch all of the company match. Tough to do with semi-random bonuses thrown in here and there during the year. But it turns out her employer does have a true-up provision, with an unspecified payout date. Guess I can be a little low on the last contribution without missing some of the match. Hope that works if she retires halfway through the year with the 401k already maxed out.
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