Can someone educate me on this one?
1. If a company like yours won't do the max paycheque deduction at source, can you still use that leftover space yourself? By directly depositing it into the account or some other 401k account? Or are you screwed because your employer doesn't feel like it? (In Canada, I don't know any employers who impose a limit like this, but I'm always able to walk into my bank, open an tax-free account and put money in it. I'll get the tax rebate in the new year)
2. What's the downside for the company in allowing you to use the full amount? Does something come off their tax deductions? Or is it just "we don't feel like doing paperwork"?
Toque.
1) 401k plans are 100% tied to your employer and you are subject to the terms your employer chooses when they set up the plan, which may be limited by the choices that the provider they choose offer. Like our healthcare being closely tied to employment, this creates obvious problems.
2) There are a number of different reasons. For example, if an employer does a dollar for dollar match, it behooves them to limit how much of their salary employees can contribute. In other cases, the administrator may charge more for certain benefits, so it isn't that the employer doesn't want to do paperwork, but rather that they don't want to pay the administrator to do more paperwork. In some cases, it seems the person setting it up looks at the options, can't imagine anyone ever using them, and chooses not to tick that box.
So if they don't want to let you use that space, you don't get to use it?
For our RRSPs here, the company can set up a plan and offer matching. Anything they match, they can control (both my contribution and the corporate match) and therefore tells us where the money can go (i.e. offer dumb plans).
I had an employer offer 25% matching on 5% of my salary. I kick in 5%, they add 1.25%. All of that money had to go to a certain broker, and I could only choose from a list of 10 mutual funds.
However, Canadian law says I can put up to 18% of my previous year's salary into RRSPs, so I had a separate RRSP account and put the other 12%ish in there. So what my employer felt like matching, or thought of my savings abilities, doesn't matter.
Toque.