Ira % 401k

[street]

Maybe someone could put me straight on something a young man told me. He said that it is illegal for a company to have two retirement plans for an employee. The company would contribute to bot the 401K and would have a pension IRA retirement they would fund for your retirement.

My question is true or didn't I understand him correctly or maybe I have some twisted around but that is how I understood him. I will ask more questions when I see him again.

Thanks and I hope you can understand my explanation.

 

[Big_Hitter]

fake news!

you can have multiple retirement plans for employees, as long as the various contribution and benefit limits are followed

for example, a private sector employer can spopnsor a defined benefit plan, a 401k plan and a profit sharing plan.

 

[pb4uski]

+1 One of my former employers had both a defined benefit pension plan and a 401k. Another former employer had a defined contributions plan and a 401k.

 

[Alan]

+1 One of my former employers had both a defined benefit pension plan and a 401k. Another former employer had a defined contributions plan and a 401k.

+2

My old company had both a defined benefit plan and a 401k.

My wife’s old company had both a cash balance pension plan and a 401k.

 

[bingybear]

I had an employer that had a 401k and defined benefit plan. I also had one with a T401k and a R401k. the latter had restrictions on total contributions .. you could not max out both at the individual level.

What do you have that you are concerned with?

 

[UnrealizedPotential]

OP, I am trying to understand your question. It is not clear to me. If you're asking whether a company can have both a pension and 401k, the answer is yes they can. If you're asking if a company can contribute to both a pension and a 401k, I believe the answer is yes, but I doubt any company does nowadays.

But again , to me at least your question is unclear.

 

[jazz4cash]

OP, I am trying to understand your question. It is not clear to me. If you're asking whether a company can have both a pension and 401k, the answer is yes they can. If you're asking if a company can contribute to both a pension and a 401k, I believe the answer is yes, but I doubt any company does nowadays.

But again , to me at least your question is unclear.

I don't quite understand the question either but another example of an employer with two plans is Fed Govt FERS employees that get DBP and DCP (THrift Savings Plan that is essentially same as 401k. There are a few companies that have both and contribute for grandfathered employees but I agree it would be rare for new hires except for Govt jobs.

 

[bada bing]

I'm still w*rking and part of the reason is the retirement benefits my evil mega-corp
pays. I have a good 401K plan with 7% match and a cash balance pension plan
the company funds with 9% of salary.

Because of the above, I am not eligible for a deductible tIRA contribution or a
direct Roth IRA contribution, but the "backdoor" works fine. Makes
you wonder what the bureaucrats think they are accomplishing with their
thousands of pages of complex regulations.

 

[youbet]

I'm still w*rking and part of the reason is the retirement benefits my evil mega-corp
pays. I have a good 401K plan with 7% match and a cash balance pension plan
the company funds with 9% of salary.

Because of the above, I am not eligible for a deductible tIRA contribution or a
direct Roth IRA contribution, but the "backdoor" works fine. Makes
you wonder what the bureaucrats think they are accomplishing with their
thousands of pages of complex regulations.

I'm guessing they'll get around to slamming the "backdoor Roth" door closed one of these days. But for now, there ya go........

 

[bada bing]

I'm guessing they'll get around to slamming the "backdoor Roth" door closed one of these days. But for now, there ya go........

Actually, fairly recently the IRS had the opportunity to issue clarification on
both backdoor and mega backdoor Roth conversions. It was widely thought
they were going to "slam the door". Quite to the contrary, they pretty much
explicitly blessed both. And that was the IRS under Obama. I would guess that
until/unless Congress puts something in the new tax bill, both are safe for the
foreseeable future.

 

[UnrealizedPotential]

Actually, fairly recently the IRS had the opportunity to issue clarification on
both backdoor and mega backdoor Roth conversions. It was widely thought
they were going to "slam the door". Quite to the contrary, they pretty much
explicitly blessed both. And that was the IRS under Obama. I would guess that
until/unless Congress puts something in the new tax bill, both are safe for the
foreseeable future.

One thing there is that the government gets immediate money upon conversion because one has to pay taxes up front to switch to a Roth. That's a pretty good carrot stick that is waved in plain sight and hard to resist for the government .
So I agree, for now the backdoor Roth is probably safe. But if something changes, then look out.

 

[street]

Thanks I will talk to this guy again. It could be I misunderstood him what he was telling me. Thanks

 

[Dancfo]

As most have already commented, an employer can have multiple plans, such as a defined benefit plan and a defined contribution plan, and perhaps also an ESOP. Often times, the 401(k) option is a subset of a profit sharing plan, where the company make the profit sharing contribution and the employee is allowed to also contribute money to the plan (401(k)) portion). The employer may also match funds contributed by the employee. Although it may seem as though there are multiple plans here, all of these different buckets fall under one plan.

I do not know the answer to this, but a company may not be allowed to sponsor two defined contribution plans - such as two 401(k) plans? Maybe a Google search can answer this question quickly?

Also, as mentioned, companies are restricted on how much can be contributed to various plan types. Not only are there limits on total contributions, there are restrictions on how much certain employees can receive over other employees. The concept here is that "Highly Compensated Employees" cannot receive an overly disproportionate share of contributions from the employer, not can certain employees hold a disproportionate balance of the plan, without requiring additional contributions to the plan from the employer. As these are Department of Labor (and IRS) rules, you can imagine it can get fairly complicated.

 

[Z3Dreamer]

In the old days, one could have a defined contribution plan (401k,etc) covering all of the young, poorly paid employees. You could put some amount, say 5%, in for these people. Upon reaching retirement, the projections would show they would have enough money to replace 100%, or so, of their pay. Oh, and since they were young and poorly paid, there would be alot of turnover. They would not be vested so the funds would go to reduce company contributions.

For the 3 rich old dudes making $200,000 or so, a year, you would have a defined benefit plan. Due to their age and wages, the company would have to put in incredible amounts for them. This plan also would yield a retirement benefit = to 100% of their wages.

The contributions would be something like this: $10,000 contributed for the lower group and $300,000 for the upper group.

I remember at some point, the IRS was not too happy about this scheme of having two plans.

Maybe this is what your young buddy is referring to.