Author Topic: Questions on 'non-qualified' excess 401K plan  (Read 1482 times)

Lancebaby

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Questions on 'non-qualified' excess 401K plan
« on: November 25, 2016, 07:38:16 AM »
My company offers an 'excess' 401k plan for employees that make over the IRS limits (enables additional tax deferred contributions) beyond the regular 401k plan.  I have used this off and on thru the years and have approx 25% percent of my retirement $ in it.  The question is. . this is a 'non-qualified' plan which is owned by the company and held in 'notional' accounts.  You can get the money when you retire or leave the company.  In the meantime it acts like a 401k BUT. . .when paid it is paid out of the companies balance sheet.  The risk is that if the company goes bankrupt you become a creditor and get in line with other creditors. . .the company is a fortune 50 company that has been around for a long time (not that it means it can't get into trouble).

The benefit of the plan is that it pays a 1:1 match up to 6% of your base salary.  So, if your base salary is $300K, you can set aside $18K and they will give you $18k.  The choices are very good as far as the investments go. . .

So. . thoughts?  I am retirement ready but plan to work as long as they will keep me so I am not working on a 20 year plan.  More like 3-5.

thanks

seattlecyclone

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Re: Questions on 'non-qualified' excess 401K plan
« Reply #1 on: November 25, 2016, 10:02:05 PM »
If it's anything like the program my employer offers, you get the money as a lump sum when you leave the company. Since it's a non-qualified plan there's no option to roll it over to an IRA at that point. Accumulate too much in the account and that's a pretty big tax bill in your last year. You've hit on the other big risk, that the money is mingled with general corporate funds until it gets to your bank account. What this means is that as long as your employer has a pretty significant cash cushion on their balance sheet you're reasonably safe leaving it where it is. However you need to be prepared to exit at the first side of trouble, as you do not want to be fighting with general creditors over scraps in a bankruptcy when your retirement is on the line.

Lancebaby

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Re: Questions on 'non-qualified' excess 401K plan
« Reply #2 on: November 27, 2016, 09:24:10 AM »
Thanks - yes, my plan sounds very much like yours.

So your suggesting is to be ready to quit if/when there is financial issues and "take the money and run". . .

seattlecyclone

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Re: Questions on 'non-qualified' excess 401K plan
« Reply #3 on: November 27, 2016, 09:42:15 AM »
Yes, absolutely. Sacrificing a big chunk of your net worth goes way beyond any reasonable expectation of loyalty to a company.

Lancebaby

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Re: Questions on 'non-qualified' excess 401K plan
« Reply #4 on: November 27, 2016, 06:35:41 PM »
Great - thanks.  Also, what are your thoughts on contributing enough to get their 1:1 match but no more? This would require me putting in about 20K of my money, they then match at 20k.  As I said earlier, I have a big chunk there already.


seattlecyclone

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Re: Questions on 'non-qualified' excess 401K plan
« Reply #5 on: November 28, 2016, 12:49:40 PM »
It's probably worth pushing yourself into a higher tax bracket in your last year for the matching funds. Anything beyond that seems more dubious.