401k participation denied

[cyberjamin]

What is the name of your state? CA

I have been told by my employer that I cannot participate in their 401k program for 2005 because I "may" make too much money based on what I made in 2004 with them. I am a high paid consultant on W2 with them, therefore I get paid by the hour.

Is this legal? With the new changes to 401k programs starting in 2006 (automatic enrollment with opt out vs opt in so lower income emplyees aren't discrimiated against), can they still do this? Is this reverse discrimination since I am being told I make too much to participate? I have lost the ability to lower my taxes due to this.

Thanks,
Lei

 

[Some Random Guy]

Its not your employer who is making the rules here - its the IRS. If you want to complain about not being able to contribute to your 401(k), talk to the feds.

Talk to your tax preparer to see if any other plans are available to someone at your income level (IRA, Roth-IRA, etc).

 

[cyberjamin]

Its not your employer who is making the rules here - its the IRS. If you want to complain about not being able to contribute to your 401(k), talk to the feds.

Talk to your tax preparer to see if any other plans are available to someone at your income level (IRA, Roth-IRA, etc).

How is it that I have been able to participate though other companies when at the same salary level? They just stop taking automatic contributions when I hit the IRS maximum. This company says their plan doesn't allow for such an automatic process so they can't stop the contributions. When asked why, they say it's because of low participation...well duh...if I am not allowed to participate, it makes sense that the particpation rate is low.
Now that the new law for 2006 requires that employers automatically enroll employees, how will this effect this temp agency? Will they have to open their plan to me then?

 

[Some Random Guy]

The IRS has rules about the MIX of high income/ lower income participant contributions. The effects are different for each employer.

http://www.google.com/search?hl=en&lr=&q=401k+limit"highly+compensated"

 

[cyberjamin]

The IRS has rules about the MIX of high income/ lower income participant contributions. The effects are different for each employer.

http://www.google.com/search?hl=en&lr=&q=401k+limit"highly+compensated"

Thanks fort the link - there is some real good info here.

Do you know if the Save More for Retirement Act of 2005 will change the way HCE's are treated? As far as I am concerned, this is reverse discrimination since I am not allowed to get the same tax benefits and retirement planning as LCE's. I am not a CEO or some other type of executive...I just happen to work hourly instead of salary and make a nickel above the current amount. Also, my current employer does not match, hence low participation.

Do you know if this is now a law for 2006?
"Congress must encourage employers to use automatic enrollment, under which employees automatically participate in workplace retirement plans unless they opt out."

Thanks

 

[Some Random Guy]

I am not up to speed on the new law, but automatic enrollment will definitely improve participation by the lower paid employees (because most will be too lazy to disenroll).