UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: KGWood One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: Re: 401(k) and Highly Compensated Employees Date: 8/2/1999 2:31 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 0
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!

Ken

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.....
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Foolanthropy 2014!
By working with young, first-time moms, Nurse-Family Partnership is able to truly change lives – for generations to come.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Economic Implications of Cuba
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement