Any way around HCE 401k caps?

[Tjat]

Background: I'm classed as a Highly-Compensated Employee (HCE) and my goal is to max out my 401k and the company match. They don't do true-ups, so I must contribute at least 6% every pay period to receive the full match. At the beginning of the year, I calculated that 12% would put me over the 18,000 threshold for 2016...so I set it at 11%. My plan was to up it as necessary mid-year to reach 18K. I backloaded it thinking it'd be easier to absorb once SSI taxes stopped being paid (shame! shame!)

Problem: I recently realized that due to non-discrimination tests, HCE 401K contribution percentages are capped at 12%. Because I waited too long to increase my contribution, this will result in my only contributing 17,200 to my 401K. My understanding is that non-discrimination is based on the average annual contribution percentage...so because I contributed < 12% YTD, I should be able to contribute more for the remainder of the year so long as my average is still 12%. Am I wrong? or overlooking something?

[johnny847]

You should talk to payroll. What you're stating sounds reasonable.

To answer your general question in the title though, the way to get around HCE caps is to encourage your fellow employees who make substantially less than you (ie, are not HCEs) to contribute more to their 401k =)

[chasesfish]

HCE caps really stink and punish small to medium size businesses.  They were written with good intentions, but they've been pretty terrible in reality.

The best thing you can do is to lobby your employer to do automatic enrollment for all new employees and start that at 5% or more of salary.  Over 1-3 years, it'll help relieve your HCE issues.

[mm1970]

You should talk to payroll. What you're stating sounds reasonable.

To answer your general question in the title though, the way to get around HCE caps is to encourage your fellow employees who make substantially less than you (ie, are not HCEs) to contribute more to their 401k =)

This.

But definitely talk to payroll.  It's been quite a number of years since I was an HCE (at least 10?  I only hit it when I sold stock at my last company.)  My understanding back then is that it's an IRS rule so there is *no* way around it.  HOWEVER IRS makes exceptions if the company matches.

So at the time, my company did not match.  So I was limited to 4% that year.

A few years later they started matching, and the HCE rule no longer applied.  Rules may have changed, plus a quick google tells me that there are still all sorts of rules on what % of the total match goes to the various employees.

Our company was large-ish, so by adding the match, there was a large amount of $ going to the non-HCE employees.  A smaller company might have a harder time hitting those requirements.