Author Topic: Help me understand my husband's 401k match please  (Read 4260 times)

MEJG

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Help me understand my husband's 401k match please
« on: August 06, 2015, 03:56:20 PM »


So I just got my hands on my DH's 401k plan.  Prior to this he had told me he get's a 7% match but reading this I think he was mistaken.  I've copied the relevant  section below, would you mind reading it so I can test my understanding.

Match appears to be: 100% of the first 3% of contributions and 50% of the 3-5% of salary contributions.   It also appears that they calculate at the end of the year- so an automatic "True up."  If this is so YAY us for being able to front load.

I do not understand this part "the discretionary additional matching contribution will not apply as to
elective deferrals exceeding 6% of your compensation. The total amount of this discretionary additional matching contribution will not
exceed 4% of your compensation." 

For the part I think I understand that would mean if he made $100,000 /year he would get a total match of $4,000 (100% of the 1st 3%= $3,000 + 50% of the next 2% = $1000)



From the 401k handbook:
Employer contributions that will be made to the Plan and how your share of the contributions is determined.
What is the safe harbor contribution?
Safe harbor 401(k) plan. This Plan is referred to as a "safe harbor 401(k) plan." Before the beginning of each Plan Year, you will be
provided with a comprehensive notice of your rights and obligations under the Plan. However, if you become eligible to participate in the
Plan after the beginning of the Plan Year, then the notice will be provided to you on or before the date you are eligible. A safe harbor
401(k) plan is a plan design where the Employer commits to making certain contributions described below. This commitment to make
contributions enables the Employer to simplify the administration of the Plan by ensuring that nondiscrimination regulations are met, which
is why it is called a "safe harbor" plan.
Safe Harbor Matching Contribution. In order to maintain "safe harbor" status, the Employer will make a safe harbor matching
contribution equal to 100% of your salary deferrals that do not exceed 3% of your compensation plus 50% of your salary deferrals between
3% and 5% of your compensation. This safe harbor matching contribution is 100% vested (see the Article in this SPD entitled "Vesting").
For purposes of calculating this safe harbor matching contribution, your compensation and deferrals will be computed for the Plan Year.

Discretionary Additional Matching Contribution. The Employer may make a discretionary additional matching contribution. If the
Employer makes a discretionary additional matching contribution, the discretionary additional matching contribution will not apply as to
elective deferrals exceeding 6% of your compensation. The total amount of this discretionary additional matching contribution will not
exceed 4% of your compensation.
For purposes of calculating this matching contribution, your compensation and deferrals will be computed for the Plan Year.


forummm

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Re: Help me understand my husband's 401k match please
« Reply #1 on: August 06, 2015, 04:27:56 PM »
Sounds like he can get a guaranteed 4% match if he contributes at least 5% of his salary. And he can possibly get up to 4% additional contributed, at the employer's discretion, regardless of whether he contributes or not.

zephyr911

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Re: Help me understand my husband's 401k match please
« Reply #2 on: August 07, 2015, 09:44:59 AM »
Match appears to be: 100% of the first 3% of contributions and 50% of the 3-5% of salary contributions.

Interesting - same as TSP.

Quote
It also appears that they calculate at the end of the year- so an automatic "True up."  If this is so YAY us for being able to front load.
I'm not sure what you mean there. The language you quote below doesn't appear to address those things.
Quote
I do not understand this part "the discretionary additional matching contribution will not apply as to
elective deferrals exceeding 6% of your compensation. The total amount of this discretionary additional matching contribution will not
exceed 4% of your compensation."
What they are describing are two separate limits to the additional matching contribution. Whichever one produces the lower number is the one that will be applied.

The only part of this that seems odd to me is calculating the matches for the plan year. If they really wait until the end of the year to add their matching funds, he potentially misses out on substantial investment returns waiting for the match. I've always seen company/govt match provided on a per-paycheck basis.

dandarc

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Re: Help me understand my husband's 401k match please
« Reply #3 on: August 07, 2015, 09:58:25 AM »
So you get 4% for the first 5% of your income for sure.

Then they have the option to go beyond - they might look at the results this year and say, in addition to the safe-harbor, we'll match 25% of up to 6%.  Or 50% of up to 6%.  Or 100% of up to 4%.  It would be at the company's discretion.

So I'd put at least 6% into this 401K - that guarantees you the 4% match, and you might get more - up to another 4%.

zephyr911

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Re: Help me understand my husband's 401k match please
« Reply #4 on: August 07, 2015, 10:02:21 AM »
So you get 4% for the first 5% of your income for sure.

Then they have the option to go beyond - they might look at the results this year and say, in addition to the safe-harbor, we'll match 25% of up to 6%.  Or 50% of up to 6%.  Or 100% of up to 4%.  It would be at the company's discretion.

So I'd put at least 6% into this 401K - that guarantees you the 4% match, and you might get more - up to another 4%.
Yeah, that makes sense. Of course, a good Mustachian would be putting $18K into it regardless... ;)

Need2Save

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Re: Help me understand my husband's 401k match please
« Reply #5 on: August 07, 2015, 12:18:59 PM »
Holy confusion!  I am VERY familiar with the language you used, but even I have to admit that the last part is very poorly written!!!

Here is how it breaks down initially
Hubby contributes - Co Matches
3% - 3%
4% - Original 3%, plus half of the extra 1% for 3.5% total
5% - Original 3%, plus half of the extra 2% for 4% total
6% - only 4% unless the company decides to also give the discretionary match which they won't decide until later.

The confusing part is the wording regarding the discretionary match because it says only for 6% of employee contributions to a maximum of 4% but as you can see above he's already getting 4% in match if he contributes at least 5%.

I agree to hedge the bet, it's best to contribute at least the 6% to play it safe, but I would have your hubby ask the HR department for a better explanation on the match potential, understanding that it is not guaranteed and company may or may not pay additional matching.  Is the discretionary up to an additional 4% on top of the 4% he's already getting (by putting in 5%) or totally worthless since he's getting the max of 4% by putting in at least 5%.

The fact that he said he thinks he'll get 7% tells me perhaps the person doing his orientation told him that was historically what they've paid out which implies it's above the original 4% but to be sure you have to ask for clarification. 

To address zephyr911's comment, employers can decide when they time their matching contributions.  The two most common methods are biweekly (or per each paycheck), as you mentioned which means you want to be putting money in as much throughout the year as possible to get all matching deposits, OR the end of the year and if the company is really nice they will do the True-Up to be sure you didn't miss any matching potential.  Less common would be to match quarterly or monthly (more administrative headache for payroll). 

And yes, you can front load if your company does the end of year True-Up method but it does also mean that the company match is not going in throughout the year and you therefore lose potential earnings from those deposits as if it is being put in regular increments.   Companies generally do this to avoid paying match for people who leave mid-year.  Sad but true!

zephyr911

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Re: Help me understand my husband's 401k match please
« Reply #6 on: August 07, 2015, 12:40:04 PM »
To address zephyr911's comment, employers can decide when they time their matching contributions.  The two most common methods are biweekly (or per each paycheck), as you mentioned which means you want to be putting money in as much throughout the year as possible to get all matching deposits, OR the end of the year and if the company is really nice they will do the True-Up to be sure you didn't miss any matching potential.  Less common would be to match quarterly or monthly (more administrative headache for payroll). 

And yes, you can front load if your company does the end of year True-Up method but it does also mean that the company match is not going in throughout the year and you therefore lose potential earnings from those deposits as if it is being put in regular increments.   Companies generally do this to avoid paying match for people who leave mid-year.  Sad but true!
Ahhh, that clarifies some things for me too. I'm a fed on TSP and they specifically tell us to be careful about timing and be sure to contribute 5% for every pay period because they don't true up. The worst thing about it all is that it takes so incredibly long to process any changes to TSP deductions that you risk over- or under-deducting if you're trying to hit exactly $18K.
(I've been waiting two pay periods for my last increase to take effect)

The best deal of all would be simultaneous matching (with instant vesting) AND a true-up at the end of the year.

Need2Save

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Re: Help me understand my husband's 401k match please
« Reply #7 on: August 07, 2015, 12:48:56 PM »
I've never been in a fed or other government Plan before but employees that come work for us tell us that administrative tasks move VERY SLOWLY with big entities such as those with TSPs.  Shear volume maybe or just old/out-dated processes?    I feel for you!  It shouldn't take that long.  If you have a nice relationship with anyone in the benefits office, I'd ask them for tips on how to time it so things move quicker.  They may be willing to share some extra details on how the mechanics of it all works that will benefit you (pun intended). 

Jessa

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Re: Help me understand my husband's 401k match please
« Reply #8 on: August 07, 2015, 12:58:54 PM »
My old company had a "Profit Sharing" plan that sounds like the "discretionary matching" in your post. Basically we had a guarenteed company match of a certain percentage that went in with our paycheck contribution, then at the end of the year after all the numbers were in, the Powers That Be would determine a percentage of the profit to be distributed to the employees' 401k in a lump sum, usually at the end of March or beginning of April the following year.

zephyr911

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Re: Help me understand my husband's 401k match please
« Reply #9 on: August 07, 2015, 12:59:20 PM »
I've never been in a fed or other government Plan before but employees that come work for us tell us that administrative tasks move VERY SLOWLY with big entities such as those with TSPs.  Shear volume maybe or just old/out-dated processes?    I feel for you!  It shouldn't take that long.  If you have a nice relationship with anyone in the benefits office, I'd ask them for tips on how to time it so things move quicker.  They may be willing to share some extra details on how the mechanics of it all works that will benefit you (pun intended).
The ridiculous slowness appears to be Army-specific (our paychecks, for example, come ~8 days after the end of the pay period, more than any other branch of the DoD). I actually made contact with HR on July 15th before filing this change and they said it would hit this paycheck (that was the 3rd day of the pay period). Clearly they were mistaken.

At this point, assuming it kicks in before the next check, I'm planning to just leave it alone through the calendar year, and calculate a small monthly deduction from my ANG pay (which is only once a month and seems to have less system lag) to total up to $18K with both. If it turns out the ANG system is responsive enough to turn TSP on and off monthly, I can use it to round out my regular pay in all future years.

Pretty irritating to finally have the ability to max out and then find that system mechanics are such a hindrance to doing so.

Dexterous

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Re: Help me understand my husband's 401k match please
« Reply #10 on: August 08, 2015, 05:09:45 PM »
The worst thing about it all is that it takes so incredibly long to process any changes to TSP deductions that you risk over- or under-deducting if you're trying to hit exactly $18K.

The TSP is different for those of us in the military.  I contribute as high of a percentage as I want, and when I hit 18k they automatically stop contributing for the year.

The downside is we obviously don't get a match, but our numerous other benefits are already plenty enough that I don't care.  :P