The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Retirement Investing

URL:  http://boards.fool.com/i-suspect-the-highly-compensated-issue-is-the-29800702.aspx

Subject:  Re: Secrets of the 0.2% Date:  1/24/2012  3:48 PM
Author:  Hawkwin Number:  70007 of 75340

I suspect the highly compensated issue is the reason.

Looks like we are both right:

http://www.kiplinger.com/columns/ask/archive/2006/q0918.htm


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Another possible explanation: Some of the percentage limits are just outdated rules.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.
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us