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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: Roth IRA vs. 401(k) Date: 9/25/1997 8:45 AM
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Yo, DD.

<<There was a discussion on 401(k) max. contributions. For whatever reason, our plan limits us to 16%. We also have an ESOP plan. That may be the reason. And as I said, The company contributes 2.3% regardless. The point is, everyone should check thier own plans. I'm part of the hourly work force. Some of the supervisor have had limit problems due to an 'averaging system'. Details were sketchy. They were told they could contribute no more than the average of everyone at thier pay level. Over contributions were returned the following year. One year I know they were limited to about $5500,00>>

Many plans do indeed impose a mandatory limit on participants. Obviously yours does. The reason is to avoid compliance problems because of excess contributions and discrimination testing.

Your supervisors are evidently in what's called the "Highly Compensated (HC)" group. Because of that, they are limited in what they can contribute as an average percentage of pay based on what the "Lower Compensated (LC)" group does. As a group, the HC's average percentage contribution may not exceed the average percentage contribution of the LC's by more than 2%. If it does, the HC must have that "excess" contribution returned. As an example, if the LC puts in on average 3% of pay, the HC may not put in more than an average 5% of pay. The rationale is the plan will discriminate in favor of HC if they put in more of their own money than the LC do. Therefore, the law won't allow it. As a result, many HC can never reach the $9.5K max because LC refuse to put any more money as a percent of their pay into the 401k. That's always struck me as strange. Penalize those who want to save because others won't. Yet, such is out wonderful tax code.

Regards………Pixy
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