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penalities for being "highly" compensated
02-04-2008, 02:15 PM
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#1
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Moderator
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Posts: 4,065
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penalities for being "highly" compensated
DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K. This means we won't be able to contribute the full amount that is allowed to most individuals. It really stinks b/c it was just over 100K, and he likely will be under 100K this year.
Just posting to complain. 
I guess that means more for the taxable account.
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simple girl
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02-04-2008, 02:18 PM
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#2
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Full time employment: Posting here.
Join Date: Oct 2003
Posts: 961
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Does he get access to the "highly compensated" dining room now? 
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02-04-2008, 02:23 PM
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#3
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Give me a museum and I'll fill it. (Picasso)
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 Quote:
Originally Posted by simple girl
DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K. This means we won't be able to contribute the full amount that is allowed to most individuals. It really stinks b/c it was just over 100K, and he likely will be under 100K this year.
Just posting to complain.
I guess that means more for the taxable account. |
Most likely his retirement plan was "top level tested" to make sure on an overall basis he can't contribute more than the guy trying to trade up his big screen TV for a bigger one each year......... 
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02-04-2008, 02:27 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
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Numbers is hard
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02-04-2008, 02:28 PM
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#5
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Thinks s/he gets paid by the post
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When I was a highly compensated employee, I was capped at 4%. However, the company did offer a separate contribution plan and match for those of us in the overpaid pool. I don't recall it being all that good, though.
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02-04-2008, 02:28 PM
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#6
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Give me a museum and I'll fill it. (Picasso)
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Quote:
Originally Posted by REWahoo
I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
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That would not explain the lowering of the amount he can put into his 401K, though........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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02-04-2008, 02:30 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Jan 2008
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I'm fuzzy on the details, but I recall it that I was capped based on a multiple of the average contribution percentage. So, if the average for the company was 2% then I could contribute 4%.
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02-04-2008, 02:30 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Feb 2004
Posts: 2,670
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Quote:
Originally Posted by REWahoo
I think the "highly compensated" classification is tied to the max earnings taxable for SS - $97,500 in 2007, $102,000 for 2008. When you think about it, not a bad problem to have...
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The sad part is, I know a lot of people in that salary range that are broke.
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02-04-2008, 02:33 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Has to do with the 401(k) not being a "safe harbor" plan, right? Until my old co went safe harbor, I was limited almost every year in what I could contribute due to the same HC rules. Two consecutive years I over contributed and got an unwelcome check back, right after filing my taxes.  (Some of us are slow learners...).
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Numbers is hard
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02-04-2008, 02:38 PM
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#10
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Thinks s/he gets paid by the post
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Wikipedia to the rescue: 401(k) - Wikipedia, the free encyclopedia
"The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2% greater (or 150% of, whichever is less) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level."
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02-04-2008, 03:01 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Amazing how a simple explanation can clear up confusion... 
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02-04-2008, 03:08 PM
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#12
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Thinks s/he gets paid by the post
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Here's my interpretation. If you're a highly compensated then you're likely in management. As such, the IRS doesn't want you to make 401(k) decisions that benefit you at the expense of the wage slaves you're trying to oppress. So, you're capped at 2% above them, or 150% of what they contribute, whichever is less. than your employees contribute.
Unfortunately, a lot of non-executive types get caught in the highly compensated net as well. I'm just glad to be at a company now where there is no net.
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02-04-2008, 03:09 PM
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#13
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Give me a museum and I'll fill it. (Picasso)
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Last year our CEO had just filed his taxes when he got a distribution from the 401(k) for overpayment because the plan had failed the ADP test. He was so livid that he would have to go back to his tax guy for the very small distribution to get an amended return filed. But did this cause him to fix the 401(k) plan with more matching? Absolutely not.
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02-04-2008, 03:12 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Marquette, I get it...just poking a little fun at the rather liberal use of acronyms in the Wiki explanation.
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02-04-2008, 03:14 PM
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#15
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Quote:
Originally Posted by Marquette
Here's my interpretation. If you're a highly compensated then you're likely in management. As such, the IRS doesn't want you to make 401(k) decisions that benefit you at the expense of the wage slaves you're trying to oppress. So, you're capped at 2% above them, or 150% of what they contribute, whichever is less. than your employees contribute.
Unfortunately, a lot of non-executive types get caught in the highly compensated net as well. I'm just glad to be at a company now where there is no net.
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NOT in management! Yep, one of those non-executive employees who makes a nice salary but put in overtime (yes, he get's paid OT, so thankful for that!).
I'm wondering if I should delay doing our taxes this year...I have a feeling they will be sending some of our $$ back from our 401K just in time to make us have to do an amendment...grrrrr.....
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simple girl
less stuff, more time
(55, married; Mr. Simple Girl, 59. FIRED 12/31/19!)
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02-04-2008, 03:18 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jan 2008
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I figured that you got it; I'm not sure that I do, though.
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02-04-2008, 03:23 PM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Quote:
Originally Posted by Marquette
I figured that you got it; I'm not sure that I do, though.
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Based on your translation above, I'd say you understand both the letter and the spirit of the law.
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Numbers is hard
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02-04-2008, 06:41 PM
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#18
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
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Quote:
Originally Posted by simple girl
DH just found out because he made over 100K last year (just a little over) he is now classified as "highly compensated" by the company...as such, we are now restricted from contributing more than 10% to his 401K.
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This must be company specific. The company for which I work does not have such restriction. The amount is limited by what the law allows.
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02-04-2008, 06:43 PM
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#19
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Thinks s/he gets paid by the post
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I never heard of a limit. DW pulls in more than 100 a year and she can do the maximum.
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02-04-2008, 06:49 PM
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#20
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Thinks s/he gets paid by the post
Join Date: Oct 2006
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Virtually all working people the the US consider themselves "middle class". But some of us really do have higher incomes than others.
According the the Census Bureau, less than 10% of people who worked full time for "50 weeks or more" in 2006 made more than $100k.
So it's time for a pat on the back, he really is one of those "high earners".
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