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If HCE testing appears to be a problem for your employer, I wonder if they've set up a "Non-qualified Plan" exclusively for HCE's.

I'm not a specialist, but 401k's, 403b's, pension plans and the like are "Qualified Plans" - meaning they are subject to ERISA (this is the acronym - please don't ask me what it stands for! - for the legislation that governs all of these types of plans). Employers will often times set up Non-Qualified plans - mostly for the executives/HCE's - as an added benefit above and beyond what is permitted in the Qualified Plans. These Qualified Plans are NOT subject to the rules, regulations, AND PROTECTIONS of ERISA.

I am aware that many employers that have 401k plans that have HCE testing problems will set up a Non-Qualified Plan that will essentially 'mirror' the 401k plan. This means essentially that it has all of the same investment options as the regular 401k plan. You as a participant in the non-qual. plan would then contribute above-and-beyond what you put into the regular 401k plan. The Non-Qual. Plan would have the same tax-deferral benefits as the regular 401k - someone more versed in this than I would have to explain differences - if any - in taxation when you either retire or just plain leave that employer.

All-in-all, it would seem like something you may want to ask about if you will be an HCE. If they don't offer it, maybe you and the other HCE's can encourage them to set one up. Good Luck!


P.S. It's my understanding that the big risk with a lot of Non-Qual. Plans is if they are "unfunded." This means that the dollars in the Plan are not actually funded with cash but are effectively an IOU to the participants from the employer. This often happens when a non-qual. plan is set up to cover a portion of an employer's bonus program to its executives. In this case, if the employer goes belly-up, the participant is just another unsecured creditor of the employer- yuck!! In the "mirror" plan I mentioned above, you would be funding the plan with your contributions, so the cash would be there - BUT, I think the cash continues to be an asset of the employer (not sure, though). Upsides and downsides to everything.....
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