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|Subject: Re: Secrets of the 0.2%||Date: 1/24/2012 3:48 PM|
|Author: Hawkwin||Number: 70007 of 76889|
I suspect the highly compensated issue is the reason.
Looks like we are both right:
The most common explanation is because of "nondiscrimination rules." By law, companies cannot have a situation where highly compensated employees (currently those earning more than $100,000) contribute a lot more to their 401(k)s than the rest of the employees. As a result, some employers set a percentage of income limit to prevent this situation.
Another possible explanation: Some of the percentage limits are just outdated rules. Before 2001, the employee's 401(k) contribution plus the employer match could not be more than 25% of a worker's income, so some employers capped their employee contributions at 15% to make sure they fell within those limits, says Rick Meigs, president of the 401khelpcenter.com.
But in 2001, that limit was increased from 25% to 100%. "For all purposes, the plan limit was no longer necessary, but many plans never removed them," says Meigs.
Employers aren't required to make a change, but it's worthwhile to ask. If that's the only reason for the limits, see if the plan documents could be updated to eliminate the cut-off.
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