Overheard at Work

[zephyr911]

Today's tally:
               Me      CW
Breakfast  $0      $4
Lunch       $0.69 $14

Should I tell him I'm keeping score? >.<

After a month, then make up something really cool you bought with the difference.

Or instead, tell him he could have "x" if he did what you do?

So proud of this CW. He decided to get his masters and one of his first classes was basic accounting. Results are showing already.

Yesterday, he told me he added up his cafe' expenses for the last month ($280) and misc. energy drinks, dip, etc (another $300) and resolved to stop screwing himself. He made his own sandwiches for lunch. :D

[Kitsunegari]

So proud of this CW. He decided to get his masters and one of his first classes was basic accounting. Results are showing already.

Yesterday, he told me he added up his cafe' expenses for the last month ($280) and misc. energy drinks, dip, etc (another $300) and resolved to stop screwing himself. He made his own sandwiches for lunch. :D

Isn't it beautiful to see people suddenly 'getting it'? :D

[zephyr911]

Isn't it beautiful to see people suddenly 'getting it'? :D

Baby steps :D

[jorjor]

Flat dollar makes sense if you're contributing the full $18K.  I'm guessing that less than 2% of 401k participants actually do that.

Mine doesn't even allow me to do that.  The individual percentage contribution isn't high enough for me, or pretty much anyone, to max out the annual pre-tax.

You aren't able to adjust it?  For instance, I could set it to 24% if I wanted to max out my 403b.
Doesn't matter that the company mandates 3%- change it.

The max allowable is 10% of gross wages.

Allowable by whom?  Even if the web form doesn't go higher, you should be able to have HR manually adjust it.

Some places have problems with failing 401k discrimination testing because the amount that Highly Compensated Employees contribute is higher than the amount that Non-Highly Compensated Employees contribute, beyond some allowable bounds. Some companies limit contributions to reduce the chances of that happening. I've heard of company-set limits that don't allow people to contribute beyond the match, so no more than a couple percent in some cases. There are other ways to fix it. My dad has had some contributions returned to him the last couple of years. Some companies give a fully-vested contribution to NHCEs to close the difference. Certain plan designs give people incentive to contribute enough to close the gap.

Not necessarily what's going on here, but those low limits aren't uncommon.

[Threshkin]

We have 401k contribution limits at my company (large High-tech).  But they are 40% for base contributions plus 40% for catch-up contributions if you qualify.  This adds up to 80% of your paycheck that you can potentially contribute pre-tax! 

It you do this you would miss out on some of the company match money because it caps out at 6% of your gross salary.  But, if you are a short timer or have other reasons for wanting to accelerate your 401k contributions, it is pretty good.

Since I always think in terms of contributing the maximum allowed by law to my 401k I have a different perspective than many regarding matching caps and contribution limits.  I don't like either limit.  A 6% match cap like mine means that only people grossing over $200K can get a match for all of their 401k contributions (too lazy to do the exact math).  Salary caps are bad when they are low (mine isn't) because that can mean that you cannot max out your annual contribution.  I would be totally pissed off if my contribution was capped at 10% of my salary like iowajes mentioned.

[I'm a red panda]

We have 401k contribution limits at my company (large High-tech).  But they are 40% for base contributions plus 40% for catch-up contributions if you qualify.  This adds up to 80% of your paycheck that you can potentially contribute pre-tax! 

It you do this you would miss out on some of the company match money because it caps out at 6% of your gross salary.  But, if you are a short timer or have other reasons for wanting to accelerate your 401k contributions, it is pretty good.

Assuming 40% doesn't reach your max before the end of the year (so what's that under $45k salary?)- how would you miss out on the match?  Wouldn't you still get the 6% matched?

[Clean Shaven]

Overheard from coworker a day or two ago:  I can't buy anything until the end of the year, I've spent so much already, and payday isn't until this Friday!

CW today:  I'm trading in my Toyota (a circa 2007 Rav4, nothing wrong with it) for a new Audi!  OMG I love them so much!

I'm just sitting here thinking that she's going from one of the most reliable vehicles to one of the least reliable, and if her past money habits continue, she won't have any $ to repair the Audi after warranty expires.  There's just no helping some people.

[Pylon]

Finally have something to contribute. It's not that my office is so great with their money, but it's usually just the normal stuff that we all hear if money is brought up at all.

CW 1: My boyfriend says he can't wait to get laid off so he can pay off his house. (Apparently he's been slacking off for the last year to try and accomplish this.)

CW 2: How does that work?

CW 1: He says that if he gets laid off he will take money out of his 401K to pay off the house because he can withdraw money without penalty if he's unemployed.

Me (around the corner): WTF are these people thinking??

[dragoncar]

Overheard from coworker a day or two ago:  I can't buy anything until the end of the year, I've spent so much already, and payday isn't until this Friday!

CW today:  I'm trading in my Toyota (a circa 2007 Rav4, nothing wrong with it) for a new Audi!  OMG I love them so much!

I'm just sitting here thinking that she's going from one of the most reliable vehicles to one of the least reliable, and if her past money habits continue, she won't have any $ to repair the Audi after warranty expires.  There's just no helping some people.

Duh, that's why you trade it in when the warranty expires

[Beaker]

Finally have something to contribute. It's not that my office is so great with their money, but it's usually just the normal stuff that we all hear if money is brought up at all.

CW 1: My boyfriend says he can't wait to get laid off so he can pay off his house. (Apparently he's been slacking off for the last year to try and accomplish this.)

CW 2: How does that work?

CW 1: He says that if he gets laid off he will take money out of his 401K to pay off the house because he can withdraw money without penalty if he's unemployed.

Me (around the corner): WTF are these people thinking??

Well, that might work if he's 55 or older this year. Not that it's a good idea, but it would at least work.

Too bad, it'd be pretty handy for RE if being unemployed would let you access your 401k.

[MoonShadow]

Finally have something to contribute. It's not that my office is so great with their money, but it's usually just the normal stuff that we all hear if money is brought up at all.

CW 1: My boyfriend says he can't wait to get laid off so he can pay off his house. (Apparently he's been slacking off for the last year to try and accomplish this.)

CW 2: How does that work?

CW 1: He says that if he gets laid off he will take money out of his 401K to pay off the house because he can withdraw money without penalty if he's unemployed.

Me (around the corner): WTF are these people thinking??

Well, that might work if he's 55 or older this year. Not that it's a good idea, but it would at least work.

Too bad, it'd be pretty handy for RE if being unemployed would let you access your 401k.

He might be referring to the hardship withdrawal rules for the 401k.  This depends upon the rules of the 401k more than anything, but some form of proof of hardship must be documented to the IRS the following April 15th, and they can disallow it if they don't believe it.  Just getting laid off is unlikely to qualify, particularly to an amount that would cover an entire mortgage.  It would work if the amount was comparable to the mortgage payment during the time of the layoff, in order to avoid forclosure actions; but like many of the withdrawal penalty exceptions, this one hasn't really be tested in court, so we don't know how far it can be taken before it is disallowed.

[zephyr911]

He might be referring to the hardship withdrawal rules for the 401k.  This depends upon the rules of the 401k more than anything, but some form of proof of hardship must be documented to the IRS the following April 15th, and they can disallow it if they don't believe it.  Just getting laid off is unlikely to qualify, particularly to an amount that would cover an entire mortgage.  It would work if the amount was comparable to the mortgage payment during the time of the layoff, in order to avoid forclosure actions; but like many of the withdrawal penalty exceptions, this one hasn't really be tested in court, so we don't know how far it can be taken before it is disallowed.

Am I an asshole for hoping nobody points this out, and he does it, and totally screws himself? :P

[MoonShadow]

Flat dollar makes sense if you're contributing the full $18K.  I'm guessing that less than 2% of 401k participants actually do that.

Mine doesn't even allow me to do that.  The individual percentage contribution isn't high enough for me, or pretty much anyone, to max out the annual pre-tax.

You aren't able to adjust it?  For instance, I could set it to 24% if I wanted to max out my 403b.
Doesn't matter that the company mandates 3%- change it.

The max allowable is 10% of gross wages.

Allowable by whom?  Even if the web form doesn't go higher, you should be able to have HR manually adjust it.

Some places have problems with failing 401k discrimination testing because the amount that Highly Compensated Employees contribute is higher than the amount that Non-Highly Compensated Employees contribute, beyond some allowable bounds. Some companies limit contributions to reduce the chances of that happening. I've heard of company-set limits that don't allow people to contribute beyond the match, so no more than a couple percent in some cases. There are other ways to fix it. My dad has had some contributions returned to him the last couple of years. Some companies give a fully-vested contribution to NHCEs to close the difference. Certain plan designs give people incentive to contribute enough to close the gap.

Not necessarily what's going on here, but those low limits aren't uncommon.

This might be the root cause, because I'm considered a "highly compensated employee" here.

[MoonShadow]

He might be referring to the hardship withdrawal rules for the 401k.  This depends upon the rules of the 401k more than anything, but some form of proof of hardship must be documented to the IRS the following April 15th, and they can disallow it if they don't believe it.  Just getting laid off is unlikely to qualify, particularly to an amount that would cover an entire mortgage.  It would work if the amount was comparable to the mortgage payment during the time of the layoff, in order to avoid forclosure actions; but like many of the withdrawal penalty exceptions, this one hasn't really be tested in court, so we don't know how far it can be taken before it is disallowed.

Am I an asshole for hoping nobody points this out, and he does it, and totally screws himself? :P

Yes, but that is not a reason alone to prevent it.

[zephyr911]

Yes, but that is not a reason alone to prevent it.

I'm not saying I'd withhold the advice if I actually knew the guy.

[merula]

Yes, but that is not a reason alone to prevent it.

I'm not saying I'd withhold the advice if I actually knew the guy.

Depends on how much you like saying...

[Paul der Krake]

He might be referring to the hardship withdrawal rules for the 401k.  This depends upon the rules of the 401k more than anything, but some form of proof of hardship must be documented to the IRS the following April 15th, and they can disallow it if they don't believe it.  Just getting laid off is unlikely to qualify, particularly to an amount that would cover an entire mortgage.  It would work if the amount was comparable to the mortgage payment during the time of the layoff, in order to avoid forclosure actions; but like many of the withdrawal penalty exceptions, this one hasn't really be tested in court, so we don't know how far it can be taken before it is disallowed.

Am I an asshole for hoping nobody points this out, and he does it, and totally screws himself? :P

Yes, but that is not a reason alone to prevent it.

I've withheld information before, mostly to see what would happen. Living vicariously through others can be just as fun, and a lot easier on the wallet.

[Pylon]

Finally have something to contribute. It's not that my office is so great with their money, but it's usually just the normal stuff that we all hear if money is brought up at all.

CW 1: My boyfriend says he can't wait to get laid off so he can pay off his house. (Apparently he's been slacking off for the last year to try and accomplish this.)

CW 2: How does that work?

CW 1: He says that if he gets laid off he will take money out of his 401K to pay off the house because he can withdraw money without penalty if he's unemployed.

Me (around the corner): WTF are these people thinking??

Well, that might work if he's 55 or older this year. Not that it's a good idea, but it would at least work.

Too bad, it'd be pretty handy for RE if being unemployed would let you access your 401k.

He might be referring to the hardship withdrawal rules for the 401k.  This depends upon the rules of the 401k more than anything, but some form of proof of hardship must be documented to the IRS the following April 15th, and they can disallow it if they don't believe it.  Just getting laid off is unlikely to qualify, particularly to an amount that would cover an entire mortgage.  It would work if the amount was comparable to the mortgage payment during the time of the layoff, in order to avoid forclosure actions; but like many of the withdrawal penalty exceptions, this one hasn't really be tested in court, so we don't know how far it can be taken before it is disallowed.

He's pretty firmly in his 40s I believe...

[Pylon]

Yes, but that is not a reason alone to prevent it.

I'm not saying I'd withhold the advice if I actually knew the guy.

Too bad I don't know him. And I don't know my coworker well enough to be saying anything to her about her boyfriend...  Guess I'll just have to wait to see if it happens to come up again in the future.

[lifeinhd]

I've withheld information before, mostly to see what would happen. Living vicariously through others can be just as fun, and a lot easier on the wallet.

I've intentionally said very antimustachian things to coworkers just for my own amusement. Nothing about myself, but things that reaffirm their poor choices, e.g. they tell me they live 35 miles away, I say "oh yeah, you can get a lot more house out there!" or they say their BMW's in the shop again and I say "yeah, but it's totally worth it for when it's out, right?" My coworkers are about as antimustachian as they come, so I have fun with it.

[I'm a red panda]

Whoa. Cloth isn't allowed?  How? Why?

Probably due to shared washing machines.

[mm1970]

Flat dollar makes sense if you're contributing the full $18K.  I'm guessing that less than 2% of 401k participants actually do that.

Mine doesn't even allow me to do that.  The individual percentage contribution isn't high enough for me, or pretty much anyone, to max out the annual pre-tax.

You aren't able to adjust it?  For instance, I could set it to 24% if I wanted to max out my 403b.
Doesn't matter that the company mandates 3%- change it.

The max allowable is 10% of gross wages.

Allowable by whom?  Even if the web form doesn't go higher, you should be able to have HR manually adjust it.

Some places have problems with failing 401k discrimination testing because the amount that Highly Compensated Employees contribute is higher than the amount that Non-Highly Compensated Employees contribute, beyond some allowable bounds. Some companies limit contributions to reduce the chances of that happening. I've heard of company-set limits that don't allow people to contribute beyond the match, so no more than a couple percent in some cases. There are other ways to fix it. My dad has had some contributions returned to him the last couple of years. Some companies give a fully-vested contribution to NHCEs to close the difference. Certain plan designs give people incentive to contribute enough to close the gap.

Not necessarily what's going on here, but those low limits aren't uncommon.

This might be the root cause, because I'm considered a "highly compensated employee" here.

That's entirely possible.

The highly compensated definition is determined by the IRS. 

I got hit by that the first time I sold stock in my old company (stock options).  The company, at the time, didn't match.  I was then limited to 4% for the next year.

I made sure to schedule my sales after that to all fall in a single year.  My salary alone has never been high enough to be an HCE.  It was only the stock that put me over.

Eventually that company started matching, which removes the HCE issue.

[zataks]

The highly compensated definition is determined by the IRS. 

I got hit by that the first time I sold stock in my old company (stock options).  The company, at the time, didn't match.  I was then limited to 4% for the next year.

I made sure to schedule my sales after that to all fall in a single year.  My salary alone has never been high enough to be an HCE.  It was only the stock that put me over.

Eventually that company started matching, which removes the HCE issue.

Matching only helps to a certain extent.  Without looking it up again, I don't remember the exactly language, but despite matching, my wife can only contribute up to 10% of gross because she is an HCE.  IIRC, it has to do with the amount of employees participating and rate at which they contribute?  Maybe that last part is not right though.  Hard to remember.

[Zaga]

There are a significant number of people to whom "debt free" means no credit cards.  Makes me twitchy, I won't consider myself debt free until all debt in both my name and my husband's name is gone!  We're working on the last one now, and it's only in his name.  But I'm still not debt free.

[Chris22]

I wouldn't consider myself "debt free" with a car loan and mortgage, but I do think, especially amongst the Ramsey crowd, that there is a huge tendency to (incorrectly) lump all debt together, no matter the interest rate.  Debt over 5% or so is important to pay off ASAP.  Debt under that, might as well just carry it to term, it's not really costing you too much to carry it.  Especially something like a car loan which is a fixed term, If I'm going to keep my car for 10+ years, does it really matter too much if I retire that 1.9% note in year 3 or year 5, as long as I'm investing?

[jorjor]

The highly compensated definition is determined by the IRS. 

I got hit by that the first time I sold stock in my old company (stock options).  The company, at the time, didn't match.  I was then limited to 4% for the next year.

I made sure to schedule my sales after that to all fall in a single year.  My salary alone has never been high enough to be an HCE.  It was only the stock that put me over.

Eventually that company started matching, which removes the HCE issue.

Matching only helps to a certain extent.  Without looking it up again, I don't remember the exactly language, but despite matching, my wife can only contribute up to 10% of gross because she is an HCE.  IIRC, it has to do with the amount of employees participating and rate at which they contribute?  Maybe that last part is not right though.  Hard to remember.

I have done non-discrim testing for medical benefit plans and cafeteria plans, but have not directly done 401k testing. My best understanding of non-discrimination testing for 401k plans is as follows:

I can't remember if there is a test for amount of employees contributing or not (there is for discrimination testing of some benefits but not others).

Regardless, the most common for the 401k plan to fail are tests that compare the rate of contribution before match  and including match). In each case you compare the NHCE average deferral percentage to HCE average deferral percentage. The plan fails the test if:

If NHCE% < 2% then fail if HCE% > NHCE% X 2
If NCHE% 2-8% then fail if HCE% > NHCE% + 2%
If NHCE% > 8% then fail if HCE% > NHCE% X 1.25

The HCE definition is selected by the government. An HCE is someone who is a 5% or greater owner in the company or has a salary of $115,000 (number might have changed recently). There is discrimination testing for some health benefits that defines HCEs as anyone in the top 25% of earners in the company, and still others that test for "key employees" who are determined based on ownership and/or whether they are officers at the company.

There are plan designs that help lower the chance of failing the test that don't involve limiting contributions or refunding HCE contributions. For example, matching a decent amount gives NHCEs incentive to contribute. An employer making a separate non-matching contribution might limit non-mustachian HCE deferrals because they may feel they are "saving enough" with the matching. Of course, matching/contributing to 401ks is expensive too.

[Zaga]

I wouldn't consider myself "debt free" with a car loan and mortgage, but I do think, especially amongst the Ramsey crowd, that there is a huge tendency to (incorrectly) lump all debt together, no matter the interest rate.  Debt over 5% or so is important to pay off ASAP.  Debt under that, might as well just carry it to term, it's not really costing you too much to carry it.  Especially something like a car loan which is a fixed term, If I'm going to keep my car for 10+ years, does it really matter too much if I retire that 1.9% note in year 3 or year 5, as long as I'm investing?

That's why we still have the debt we do, it's at exactly 5%.  So we pay extra, but also invest to the max in the 401-K.

[Nickyd£g]

At last, I can contribute to my favourite thread! Overheard this morning:

Co-worker A: what percentage do you contribute to your pension?  [we can put in up to 25% of our monthly salary, company matches up to 9%]
Co-worker B: Oh, I've never contributed, thinking about pensions is just too morbid!
Me: *Choking on my tea*

PS This is after Co-worker B talking about receiving her long service award, meaning she has been here over 15 years...

[Zamboni]

^Ouch!

I personally think it's more morbid to be eating cat food when I'm too old to work by anyone's standards, but to each his own.

The first company I worked for in a "real" job had a 15% cap on employee 401k contributions. So having no clue what to do I put in 10% once I was eligible (there was also a 6 month waiting period), then upped it to 12.5% and then 15% over the next two years when I got a raises. This was in the late 90's/early 2000's when stocks were really flat and bonds were doing a little better. I remember remarking to my boss about that and saying maybe I should switch to bonds, and he gave me the excellent advice to leave it aggressively in mostly stocks since I was so young. So, here's to you, awesome ex-boss, and pliable me who listened!

Even though it irks me a little bit now that they were in some sense screwing me out of upping it even more after that since I still was not hitting the IRS cap, older me is extremely pleased that younger, ignorant me did that basic step for myself. That relatively little bit of money that I put in their plan during the 5 years I worked there has tripled and turned into $120K while I was barely even paying attention.

[Ghzbani]

At last, I can contribute to my favourite thread! Overheard this morning:

Co-worker A: what percentage do you contribute to your pension?  [we can put in up to 25% of our monthly salary, company matches up to 9%]
Co-worker B: Oh, I've never contributed, thinking about pensions is just too morbid!
Me: *Choking on my tea*

PS This is after Co-worker B talking about receiving her long service award, meaning she has been here over 15 years...

I had a family member more or less say the same thing for why they don't save to retire. She said she doesn't want to think about it because it makes her feel old and makes her think about the end of her life (she's in her late 40s now).

Off-topic a bit but I've heard similar arguments from people about several "old age" issues, like not getting a will made.

[zephyr911]

I wouldn't consider myself "debt free" with a car loan and mortgage, but I do think, especially amongst the Ramsey crowd, that there is a huge tendency to (incorrectly) lump all debt together, no matter the interest rate.  Debt over 5% or so is important to pay off ASAP.  Debt under that, might as well just carry it to term, it's not really costing you too much to carry it.  Especially something like a car loan which is a fixed term, If I'm going to keep my car for 10+ years, does it really matter too much if I retire that 1.9% note in year 3 or year 5, as long as I'm investing?

That's why we still have the debt we do, it's at exactly 5%.  So we pay extra, but also invest to the max in the 401-K.

5% is a good rule of thumb. I personally try to keep it below 3% (average historic inflation), because it's arguably free at that level. Caveats do apply in some situations.
I will probably pay off my car loan (2.25%) to open up DTI space for rental mortgages next year. That DTI is an issue at all is supremely silly, with 250K NW and saving $4-5K monthly, but FICO is what it is, and I realize it's built around "conventional" spending models. So, I'll play their game and retire five figures on the left hand to free up six figures on the right.

[Goldielocks]

Relative:  "Tell me something about yourself that I won't find on your resume"
Interviewee:  "Ass-tat"

If I'm the interviewer (relative), my next step is to stand up, shake hands, thank the millennial for his time, and end the interview.  But maybe I'm just old fashioned that way.

I wouldn't trust someone who talks about their ass-tat in an interview for any job outside sex work or a tattoo parlor to interact with clients properly.

Oh. I misread that response to mean...  "I am an Ass-Tat"

LOL
Thanks for the clarification but same end result, eh?

[ohyonghao]

I wouldn't consider myself "debt free" with a car loan and mortgage, but I do think, especially amongst the Ramsey crowd, that there is a huge tendency to (incorrectly) lump all debt together, no matter the interest rate.  Debt over 5% or so is important to pay off ASAP.  Debt under that, might as well just carry it to term, it's not really costing you too much to carry it.  Especially something like a car loan which is a fixed term, If I'm going to keep my car for 10+ years, does it really matter too much if I retire that 1.9% note in year 3 or year 5, as long as I'm investing?

That's why we still have the debt we do, it's at exactly 5%.  So we pay extra, but also invest to the max in the 401-K.

5% is a good rule of thumb. I personally try to keep it below 3% (average historic inflation), because it's arguably free at that level. Caveats do apply in some situations.
I will probably pay off my car loan (2.25%) to open up DTI space for rental mortgages next year. That DTI is an issue at all is supremely silly, with 250K NW and saving $4-5K monthly, but FICO is what it is, and I realize it's built around "conventional" spending models. So, I'll play their game and retire five figures on the left hand to free up six figures on the right.

If I ever had a car loan I think the car loan would be the exception for the 5% rule.  When you consider the increase in insurance cost due to the requirement for full coverage then you are losing out on more than just the low interest rate you are paying.  Pay it off as soon as possible, and reduce your coverage to liability only.

[commodore perry]

Unfortunately, plans are in not required to provide a percentage of contribution that allows employees to reach the IRS limit.

Mine is capped at 40%, which doesn't quite let me contribute as much as I would like to. It's enough to max out the pre-tax limit, but not the post 86 portion. #mustachianProblems

my last company had a 20% max that you could put in 401k (I hit $ amount at lower % so no big deal), changed jobs in Jan this year and new company is 15%. At new hire orientation w/ HR I asked why the low %? I was asking more for the younger new hires (I'm more mid-career).

HR: 15% the IRS max
me: no it's not. IRS is $ max not percentage
HR: hmmm, no one could really afford to save more than 15%
me: of course they can; wifey and I always maxed out my 401 whether that was % when I was younger or $ amount
HR: I think the max is so high level executives can't put too much into 401k
me: no...they're limited to $ max too like everyone else; at 15% they probably hit $ max in about a week (fortune 500 company)
HR: we'll get back to you...a few days later: IRS max is 18% (not true) and we set to 15% due to blah blah policy
me: never mind

[dragoncar]

Unfortunately, plans are in not required to provide a percentage of contribution that allows employees to reach the IRS limit.

Mine is capped at 40%, which doesn't quite let me contribute as much as I would like to. It's enough to max out the pre-tax limit, but not the post 86 portion. #mustachianProblems

my last company had a 20% max that you could put in 401k (I hit $ amount at lower % so no big deal), changed jobs in Jan this year and new company is 15%. At new hire orientation w/ HR I asked why the low %? I was asking more for the younger new hires (I'm more mid-career).

HR: 15% the IRS max
me: no it's not. IRS is $ max not percentage
HR: hmmm, no one could really afford to save more than 15%
me: of course they can; wifey and I always maxed out my 401 whether that was % when I was younger or $ amount
HR: I think the max is so high level executives can't put too much into 401k
me: no...they're limited to $ max too like everyone else; at 15% they probably hit $ max in about a week (fortune 500 company)
HR: we'll get back to you...a few days later: IRS max is 18% (not true) and we set to 15% due to blah blah policy
me: never mind

Highly compensated employee rule is real, although that should mean that they should limit contributions only by HCEs and have no limit for new hires:

the average contributions of highly compensated employees, as a group, cannot exceed the average contributions of nonhighly compensated employees, as a group, by more than about 2 percent

In addition to the 2 percent spread, the contributions of all HCEs as a group may not be more than two times the percentage of other employees' contributions.

[Zaga]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

[MoonShadow]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

Well, my plan certainly doesn't qualify for said exemption.

[jorjor]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

[Hedge_87]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

As far as I know we are 100% immediately.

[jorjor]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

As far as I know we are 100% immediately.

My last place was 3 years, but there was a merger and anyone who was employed at a legacy company became immediately vested in both the old and new 401k plans, so I got to keep my money when I left after 2 years.

My current company has a generous employer contribution, but the vesting schedule is 6 years, so I have a ways to go to lock it in. :(

[MoonShadow]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

Safe harbor is the most expensive way for a company to pass the non discrimination testing. My guess is the OPs company didn't want to shell out for that, so simply limited contributions instead. Maybe OP was an HCE?

For this particular diversion of the thread, I believe you may be referring to me.  So yes, I am a highly compensated employee.

[dragoncar]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

Safe harbor is the most expensive way for a company to pass the non discrimination testing. My guess is the OPs company didn't want to shell out for that, so simply limited contributions instead. Maybe OP was an HCE?

For this particular diversion of the thread, I believe you may be referring to me.  So yes, I am a highly compensated employee.

I think we're talking about commodore perry and his 15% max

[commodore perry]

I was surprised how little HR knew about the reason for the 15% max (there were two HR people there). I guess not terribly surprising they don't get that question a lot. I've read so many times the "financial advice" that you should "stretch" to save 10% including employer max and then you'll only have to work until you're 65!

[SweetLife]

CW: Got a flat on my motorcycle ... can't believe it's going to cost $450 for a new tire
Me: WTF???!!!! One TIRE??
CW: Yeah it's a Harley.
Me: head-smack

 

[Zaga]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

I'm not sure of all of the rules, I just knew there was a loophole. 

This does concern me because with one more raise DH will probably fall into HCE territory.  I really hope that his company's 3% free will count towards Safe Harbor, cause it would really stink to have to lower our 401-K contributions!  Well, we wouldn't have to lower really, but would have to switch to after tax which is less than ideal.  I will have to find out if the 3% that everyone gets is vested immediately.

[dragoncar]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

I'm not sure of all of the rules, I just knew there was a loophole. 

This does concern me because with one more raise DH will probably fall into HCE territory.  I really hope that his company's 3% free will count towards Safe Harbor, cause it would really stink to have to lower our 401-K contributions!  Well, we wouldn't have to lower really, but would have to switch to after tax which is less than ideal.  I will have to find out if the 3% that everyone gets is vested immediately.

Honestly, I've never heard of an employer that uses the safe harbor.  I guess there are some limited circumstances where they would, but I've only worked at places where everyone is pretty financially savvy.

My understanding is if there's HCE problem, they refund the money at the end of the year.

[Taran Wanderer]

Wow, I finally understand why our company went to a 3% safe harbor many years ago.  Thanks!

[Cheddar Stacker]

You guys are forgetting the Safe Harbor rules.  Any 401-K plan that offers a 100% match on the first 4% of contributions -OR- give 3% to the account of all employees whether they contribute or not is exempt from the IRS's discrimination testing.  No discrimination testing = no 401-K limit for HCE's.  (Well, other than the federal limit of course.)

This is true. Safe harbor contributions have to be 100% immediately vesting though, right? How common is that? Everywhere I have been/seen has had a vesting schedule.

I'm not sure of all of the rules, I just knew there was a loophole. 

This does concern me because with one more raise DH will probably fall into HCE territory.  I really hope that his company's 3% free will count towards Safe Harbor, cause it would really stink to have to lower our 401-K contributions!  Well, we wouldn't have to lower really, but would have to switch to after tax which is less than ideal.  I will have to find out if the 3% that everyone gets is vested immediately.

Honestly, I've never heard of an employer that uses the safe harbor.  I guess there are some limited circumstances where they would, but I've only worked at places where everyone is pretty financially savvy.

My understanding is if there's HCE problem, they refund the money at the end of the year.

Well now you have. My employer has a 3% safe harbor. The HCEs were limited bigtime without it. I'm not sure if it vests immediately (I'm pretty sure it doesn't) but without it I would never be able max out.

When they refund that money at the end of the year it increases your taxable income. Not good.

Also, our 3% safe harbor opens up a potential profit sharing contribution on top of the safe harbor. I took advantage of that in 2014 and plan to as long as I can.

[Kriegsspiel]

SAFE HARBOR SOUNDS SUSPICIOUSLY LIKE COMMUNISM.

[nobodyspecial]

SAFE HARBOR SOUNDS SUSPICIOUSLY LIKE COMMUNISM.

All taxation sounds like communism.
That's why all IRS agents secretly wear Che Guevara t-shirts underneath their suits