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Author: TheBadger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Re: 401(k) and Highly Compensated Employees Date: 8/2/1999 11:50 AM
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Without belaboring the details there are really two issues here:

1. Who is a highly compensated employee? Generally, anyone who is in the top 20% of all paid employees, or earns over $80,000 ish, or is an officer of the corp. or owns more than 5% of the corp. These rules & definitions are set in the Internal Revenue Code. Your employer can do nothing about them.

2. Every 401(k) plan (except those safe-harbored) must perform the annual ADP (actual deferral percentage) test that compares the contribution percentages of HCE's against the contribution percentages of non-HCE's --- kind of a complicated tetter-totter test. If the plan fails the test and it is not corrected, the plan gets disqualified. The corrective measures (when the test is failed) is to reduce the percetage of contribution (and thus dollars) allowable for the HCE's until things come back into balance.

Regarding your situation, there is little that either you or your employer can do. Sorry.

TheBadger
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