Hey everybody. Long time lurker here, first time poster!
I've got some questions regarding 401(k) contribution limits, highly compensated employees, and the safe harbor exception. I'm assuming most of the folks here are of a similar mind-set as me (e.g. wanting to max out 401(k) contributions), and perhaps someone has encountered my situation. Hopefully you can help :D
In years past, my employer always matched 100% (dollar for dollar) of the first 3% of my salary that I contributed o the 401(k). After that, they would match another 50% on the next 3% of my contribution. To get the maximum match, I would have to contribute at least 6% of my salary, and the company would chip in 4.5% (3% + 1.5%).
This is all well and good, and in recent years, I would always max out my contributions.
However, my employer was acquired a couple years ago by another company. Following the acquisition, they have been slowly cutting a lot of costs. Layoffs, cuts to compensation packages, etc.
One of the changes they made for the 2015 calendar year was to change the terms of the 401(k) match program. Now they match 100% of the first 3%, and then 25% of the next 2%. The maximum match is now only 3.5% (3% + 0.5%).
It's a 1% cut to compensation. Not the worst thing in the world, but oh well. What concerns me is that from what I've been reading online, this may not be enough to make the company's plan compliant with the "safe harbor" provisions. Furthermore, since I believe that I would technically be classified as a HCE (Highly Compensated Employee) because my salary exceeds $120,000, I am wondering if there is a nasty surprise lurking for me at the end of this tax year!
Per
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/DefinitionsHighly Compensated Employee - An individual who:
Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2013 or 2014; $120,000 if the preceding year is 2015), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
Fidelity is the plan administrator, and the contributions from the employer are still denoted on the site as "Safe Harbor Match". However, from what I've read, the "new" match from the company does not seem to be compliant with the safe harbor provisions of the 401k tax laws.
https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/DefinitionsFrom what I've read at:
http://www.benefit-resources.com/blog/bid/152520/Guide-to-Safe-Harbor-401-k-PlansThe rules to comply with "safe harbor" are:
WHAT CONTRIBUTIONS MUST THE COMPANY MAKE TO A SAFE HARBOR 401(k) PLAN?
In a Safe Harbor plan, the employer elects before the beginning of each plan year to make one of two types of contributions for the following year:
A Non-Elective contribution to all eligible participants:
a minimum of 3% of pay
must include pay for the entire plan year regardless of the employee’s entry date in the plan
A matching contribution under one of the formulas listed below (a match is allocated only to employees who defer their own pay to the plan)
Basic Match: 4% of pay for participants who defer at least 5% of their pay. The Basic Match is structured as follows:
100% of the first 3% of pay that is contributed; and
50% of the next 2% of pay that is contributed
The Enhanced Match:
100% of the first 4% of pay that is contributed to the plan (this is the minimum required under this option)
100% of the first 6% of pay is the maximum allowed to still get a pass on the ACP test
Nobody at the company has made mention of this. I don't know if they are going to be subject to the IRS rules where they need to ensure a certain contribution level of the lower-paid employees, and if I'll consequently have part of my 401k contribution refunded to me. I don't even know if anybody at my employer knows about this or has considered it.
Should I inform them about it? I don't want to seem like a whistle-blower... but I also don't want to get caught in the crossfire if their retirement plans loses it's qualified status with the IRS!
Do you think I'm worrying about nothing? I really don't know what to do. Any experts here on the matter? Or suggestions on what I should do? Maybe I should just FIRE and roll it over to an IRA before anything happens :lol:
Thanks
