Author Topic: Cue the Annual Bonus Whine  (Read 20045 times)

frugalnacho

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Re: Cue the Annual Bonus Whine
« Reply #50 on: November 24, 2014, 08:25:05 AM »
So how do I go about getting my bosses to implement this, as I will be getting a bonus next month and will already have maxed my IRA and 401k?

You sound like the perfect candidate then. Go to your smartest/most logical boss tomorrow. Lead off the conversation with something like: "I think I have a way to save the company, you, and I some taxes." Tell him you believe your safe harbor contribution of 3% opens up a gateway for elective contributions in excess of 3% (mine allows for up to 9% total) and you would like to discuss with him and your 401k administrators the possibility of you getting this excess contribution as part of your total compensation package this year. (Aka, in exchange for part/all ofyour bonus, but don't officially document it as such, and don't tell this to the 401k administrator because it irrelevant, all they need to know is boss 1&2, and frugalnacho all get an extra 6%).

Younger people, including me, have another hurdle. These contributions are an allowable, elective disriminatory contribution. This means you are allowed to discriminate but only a little. They test this excess benefit for the value of the benefit when you reach 59.5. So if you are 55 and you get $5k, no sweat, but if you are 30 and get $5k that's worth like $50 or something. The 401k administrator knows all the rules and will tell you what you can and can't do.

Good luck. If it works you could be a hero to the bosses. Or maybe they already do it and don't want you to know about it. But it will save them payroll tax so they should be all for it.

So what's to stop them from doing this with my raise as well?  Instead of giving me a 3% raise this year, they could keep my wage the same and just up my 401k compensation from 3% to 6% (or maybe more since they will be saving on taxes)?  Seems like a way to get a bunch more money into a tax deferred account that is financially beneficial to everyone except uncle sam. 

Also do you have to have maxed out your 401k for this to work, or are they allowed to put excess 401k contributions into the base package for any employees?   For example if my coworker is making 50k, and putting 10% in his 401k, then he is only putting 5k into his 401k, could he still negotiate the same thing with his raise and/or bonus to get more into his account without having to defer his wages? 

I still don't understand the part about them testing for "excess benefit".  Will I be discriminated against, and limited to a lower contribution, since I am only 31 and have a long while until 59.5, and those extra % put into my account now will lead to huge excess benefits on paper 28 years from now?  Will I just have to check with the 401k administrator to see what exactly is allowable?  We use an investing company (mutual of omaha) to run our 401k, I assume an employee of theirs is paid to be our 401k administrator (instead of my boss actually being the administrator)?

Cheddar Stacker

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Re: Cue the Annual Bonus Whine
« Reply #51 on: November 24, 2014, 09:39:50 AM »
So what's to stop them from doing this with my raise as well? 

Nothing.

Instead of giving me a 3% raise this year, they could keep my wage the same and just up my 401k compensation from 3% to 6% (or maybe more since they will be saving on taxes)? 

Yes.

Also do you have to have maxed out your 401k for this to work, or are they allowed to put excess 401k contributions into the base package for any employees?     

No, the employer can do this no matter what you do.

I still don't understand the part about them testing for "excess benefit".  Will I be discriminated against, and limited to a lower contribution, since I am only 31 and have a long while until 59.5, and those extra % put into my account now will lead to huge excess benefits on paper 28 years from now?  Will I just have to check with the 401k administrator to see what exactly is allowable? 

With a safe harbor contribution, or with a profit sharing contribution and a few other types of deferred compensation arrangements, you are allowed to give unequal contributions to the participants.  However, there are rules in place to ensure people don't abuse this fact. So you can't have 2 owners making $300K/year, 5 employees making $50K/year, have a safe harbor contribution of 3% but allow the owners to make a 20% ER contribution to just themselves. That's discriminatory, and not allowed by ERISA. It could disqualify the plan. Your 401k administrators (TPA) know the rules and will tell you what you can and can't do.

Being young = bad.
Being highly compensated = bad.

If you are old and make $40k they could make an ER contribution of 100% of your wages to the 401k if they want, maybe. The point is you have limits on how much you can discriminate. In my plan our 3% contribution opens up a door to make another 6% contribution. For the older guard they can do the full 6%. I was told if all the other owners take 6% I would be limited to like 4.5% or something like that since it will have 24 years to grow before 60 years old. We were also told if we increased the 3% to 4% for everyone it would allow for much bigger contributions for anyone we wanted to make extra contributions for.

frugalnacho

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Re: Cue the Annual Bonus Whine
« Reply #52 on: November 24, 2014, 11:00:26 AM »
Thanks for that information! I don't think I qualify as highly compensated, but i'm probably considered young at 31 years old. I'll have to check into it and see what's possible.

frugalnacho

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Re: Cue the Annual Bonus Whine
« Reply #53 on: December 19, 2014, 09:52:27 AM »
So what's to stop them from doing this with my raise as well? 

Nothing.

Instead of giving me a 3% raise this year, they could keep my wage the same and just up my 401k compensation from 3% to 6% (or maybe more since they will be saving on taxes)? 

Yes.

Also do you have to have maxed out your 401k for this to work, or are they allowed to put excess 401k contributions into the base package for any employees?     

No, the employer can do this no matter what you do.

I still don't understand the part about them testing for "excess benefit".  Will I be discriminated against, and limited to a lower contribution, since I am only 31 and have a long while until 59.5, and those extra % put into my account now will lead to huge excess benefits on paper 28 years from now?  Will I just have to check with the 401k administrator to see what exactly is allowable? 

With a safe harbor contribution, or with a profit sharing contribution and a few other types of deferred compensation arrangements, you are allowed to give unequal contributions to the participants.  However, there are rules in place to ensure people don't abuse this fact. So you can't have 2 owners making $300K/year, 5 employees making $50K/year, have a safe harbor contribution of 3% but allow the owners to make a 20% ER contribution to just themselves. That's discriminatory, and not allowed by ERISA. It could disqualify the plan. Your 401k administrators (TPA) know the rules and will tell you what you can and can't do.

Being young = bad.
Being highly compensated = bad.

If you are old and make $40k they could make an ER contribution of 100% of your wages to the 401k if they want, maybe. The point is you have limits on how much you can discriminate. In my plan our 3% contribution opens up a door to make another 6% contribution. For the older guard they can do the full 6%. I was told if all the other owners take 6% I would be limited to like 4.5% or something like that since it will have 24 years to grow before 60 years old. We were also told if we increased the 3% to 4% for everyone it would allow for much bigger contributions for anyone we wanted to make extra contributions for.

I spoke with the 401k plan administrator today and she disagreed with your points.  She said the 3% safe harbor contribution is absolute for all employees and cannot deviate.  Any increase in safe harbor contribution, or any profit sharing distribution must be equal and given to every employee in the plan.  Absolutely no discrimination of any amount (the actual dollar amount can be different for different employees because of different salaries/wages) is allowed in the plan.

Edited to add:

She also said no plan allows this.  She said what you described is in fact illegal and would result in the money being returned.
« Last Edit: December 19, 2014, 09:55:41 AM by frugalnacho »

Cheddar Stacker

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Re: Cue the Annual Bonus Whine
« Reply #54 on: December 19, 2014, 10:09:41 AM »
I spoke with the 401k plan administrator today and she disagreed with your points.  She said the 3% safe harbor contribution is absolute for all employees and cannot deviate.  Any increase in safe harbor contribution, or any profit sharing distribution must be equal and given to every employee in the plan.  Absolutely no discrimination of any amount (the actual dollar amount can be different for different employees because of different salaries/wages) is allowed in the plan.

Edited to add:

She also said no plan allows this.  She said what you described is in fact illegal and would result in the money being returned.

Then either she is completely wrong, or our 401k plan administrator is completely wrong.

I've spoken/emailed with our rep about 15 times over the last month in order to execute this. They seem certain of the validity of it, and have been doing it with other plans for a long time.

I'm off to read our plan documents now to see if I can find where this is addressed. I will be back to report the results. I was hoping you would be able to take advantage of this as well, but it doesn't appear so. Be right back.

Davids

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Re: Cue the Annual Bonus Whine
« Reply #55 on: December 19, 2014, 10:22:09 AM »
My company has a 401K match up to 6% and then an annual discretionary match up to 4% depending on company performance (they put in 4% last couple years).

We also get a cash bonus around April depending on your own performance, group performance and company performance. However much percent you contribute to 401K will be deducted from that bonus and go to your 401K as your contribution. My only complaint is then I always have to then adjust how much percent I contribute after my bonus and pay raise so I max out accordingly and do not go above that (Other people complain saying 401K deduction should not come out of bonus...). Personally I wish in my 401K I can just allocate a fixed dollar amount each pay period to come out. We get paid twice a month, it would be so much easier if I could just make it a fixed dollar amount of $750 each pay period in 2015 ($18000/24) instead of playing with the percentages.

Cheddar Stacker

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Re: Cue the Annual Bonus Whine
« Reply #56 on: December 19, 2014, 10:25:39 AM »
frugalnacho, do you have access to your plan document? A quick scan of mine and I believe I discovered within the plan documents there is a provision for an Employer Profit Sharing Contribution, which is discretionary to be determined by the employer. I believe this is why we are able to do this, particularly since this is the terminology the administrator used in all their correspondence with me about it.

frugalnacho

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Re: Cue the Annual Bonus Whine
« Reply #57 on: December 19, 2014, 10:35:13 AM »
I do not have an official plan document, but I have the booklet they distributed which says:

Employer Contributions:

You will receive a Safe Harbor Non-elective Contributions to your Individual Account in an amount equal to 3% of your Compensation for the Plan year, regardless of whether or not you make Elective Deferrals to the Plan.  Your employer may also make a discretionary match or profit sharing contribution to the plan.


She says that match or profit sharing must the same for all employees.  I guess the discretionary part is interpreted as only whether they will distribute it at all - to all employees, and not any discretion to who get it.

Cheddar Stacker

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Re: Cue the Annual Bonus Whine
« Reply #58 on: December 19, 2014, 10:41:21 AM »
All plans are different, and without the plan docs and someone who knows how to interpret them, your stuck with whatever they tell you. If I were you though I would keep digging or pushing. Maybe ask to speak to someone else at the administrators office.

I've been dealing with profit sharing plans for 15 years, and you. Can absolutely give different percentages to different people within certain limits. They've tested our limits, and we are playing by the rules.

Good luck with it.

P1

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Re: Cue the Annual Bonus Whine
« Reply #59 on: December 30, 2014, 11:22:22 PM »
I get no bonus or even a 401k at my job so can I whine about that?

Capsu78

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Re: Cue the Annual Bonus Whine
« Reply #60 on: December 31, 2014, 10:53:28 AM »
At my wifes mega corp, they credited the company 401K match on this periods paychecks.  The contribute a 6% match on the first 5% of employees contribution.  She had 4 different millenials walk in bummed out, saying "that's just not a lot of money". They appeared genuinely caught off guard by something clearly explained during annual 401K push.  Sheesh, how hard is it to understand what it takes to get the "free money" incentive. 

She also had a bluebird signing bonus payout that we didn't expect and had forgotten about as this has been a year of transition from "sales management" to "executive management".  She noticed the amount was very close to the balance left on a Heloc we took out in 2007- so she paid it off and closed the account.  The payoff date for our mortgage is now down to one payment for 18 months.  I know the discussion about the wisdom of using low interest money, but we also value the peace of mind that comes with having no mortgage payment during the remainder of her prime earning years. 

viper155

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Re: Cue the Annual Bonus Whine
« Reply #61 on: January 01, 2015, 05:10:27 AM »
Don't like this gift as it is presented? Don't accept it..........be grateful.

kathrynd

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Re: Cue the Annual Bonus Whine
« Reply #62 on: January 15, 2015, 04:44:16 AM »
Where I used t work (machine operator at a factory) they used to give every employee a frozen turkey.
Most of us appreciated it.
Always some who complained it wasn't good enough.

then company stopped giving anything for a few years

Years later they started giving vouchers ($20) at a local grocery store...the some employees comlained, they didn't shop there...

What is the matter with people.
Some are so ungrateful.