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Author: rgeist Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25242  
Subject: Re: The Real 401k Cap Date: 6/20/2001 5:37 PM
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Just because you are an HCE doen't mean you are automatically limited as to how much you can put in the plan. If the lowered poaid employees are contributing you should be ok. Your emplooyer may also set up a Safe Harbor plan to be exempt from the testing requirements that can limit the HCEs.

In large corporations, I think that it is naive to suppose that lower paid HCE's have any influence at all on the company's decisions in setting 401k contribution limits for both LCE's and HCE's, matching rates, vesting schedules, Safe Harbor plans, education reimbursement plans, etc. In my experience (which I admit may be limited), only the high end of HCE's (minimum salary of at least $500,000) influence and/or decide these matters, regardless of the extent LCE's participate in such plans (i.e. getting LCE's to contribute more does nothing). As such, the fact that the company's "elite" sets 401k contribution limits for LCE's and HCE's has the effect of limiting 401k contributions to significantly less than the current $10,500 allowed by law for essentially all but higher-paid HCE's (in my current company -- those who make $175,000+).

I realise this view is cynical, but I believe it also describes reality to a large extent in big companies. Certainly, in smaller companies, the situation can be different (where lower-paid HCE's, and even LCE's, can actually have an influence on such matters).

The question now is...what should be done to prevent companies' higher-paid HCE's from manipulating existing laws this way so that more people (both LCE's and lower-paid HCE's) are allowed to participate in the current $10,500 cap?

Note the inequality of the current system becomes worse as the "cap" increases over the next few years, thereby allowing only higher-paid HCE's participating therein.
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