I think my employer is up to somthing

[dunne2112]

What is the name of your state? TX

My employer has offered a 401K to me. I was told by my manager that there would be no employer matching of funds for the 401k. If I wished to enroll in the plan, I must check the box on the form that says I am declining enrollment. At that time I will be provided with information for a web site to manage my 401k on my own, and my employer will remove my contributions pre tax from my pay check.

I am reasonably certain that all managers and more senior members of the company recieve fund matching on the 401k, so why are they telling me I will not get that, and why I am I being asked to mark "decline" on the enrollement form.

Something is rotten in Denmark I think.What is the name of your state?

 

[pattytx]

What does the plan document provide for? We can't read it from here.

 

[dunne2112]

Well that is the problem. They have given me no plan information whatsoever. Simply an enrollment form that asks for all of my info, name, SSN, ets. Then it has a section for how I want to have my funds distributed amongst a choice of different accounts. Under that is a section with three boxes, one is to enroll in the plan and asks how much to take out of the paycheck, the other is to have you money put into an SSga account, and the third, which they highlighted and asked me to sign says that I decline enrollement in the company 401k plan.

That is when they told me there would me no company matching, and that I would manage the account myself.

 

[cbg]

While it is not illegal to offer company matching to only senior level employees, I'm disturbed by their statement that you should check the Decline box and that they will make pre-tax deductions which you will manage yourself. Something sounds very, very wrong with that to me.

Contact the US DOL (which is the regulatory agency for 401k plans) and discuss it with them.

 

[kNOwtheLAW]

While it is not illegal to offer company matching to only senior level employees

I don't think that's quite right. . .

I agree though, something is wrong. First, they are required to provide you an SPD (Summary Plan Description) of the plan. Second, upon meeting the eligibility requirements you are entitled to participate in the plan, regardless of whether the employer makes a match contribution.

[..] and the third, which they highlighted and asked me to sign says that I decline enrollement in the company 401k plan.

Why would you ever decline participation in the plan? If you're eligible, participate. You control the amount you wish to contribute from your paycheck to your 401k account. It could be 0% up to whatever percentage of pay it takes to get you to $15k, actually 20k if you're over age 50 (subject to the provisions of the plan document, with amendments). 401(k)s are an excellent way to save money for retirement in a pre-tax environment. It's hard for me to believe they would actually 'highlight' the option and expect you to decline coverage.

Based on your story, I'm going to suggest a plausible scenario as to why they are discouraging you from participating in the plan. Read this carefully!

They are most likely not matching any employee deferrals, but instead providing a 401(a) discretionary profit sharing (P/S) contribution. NOTE: a match contribution is provided to employees who choose to PARTICIPATE in the plan (key word: PARTICIPATE). If the company offered a match and a lot of employees enrolled in the plan contributed only a small amount of elective deferral (percentage from their paychecks), the senior management (if considered highly compensated) contributions would be severely restricted to only 125% (about 2 percentage points) more than the non highly compensated employee group (NHCE). Although, that may be their reason to suggest you delcine participation.

A Highly Compensated Employee (HCE) is simply defined in 2006 as an employee who owns 5% or more of the company, an employee related to an HCE (wife, son, daughter, etc.), or anyone who earns over $100k. Example: If the NHCEs, on average as a group, contributed 3% the HCE group is restricted to approximately 5%. That means a senior manager, age 45, who owns 10% of the company and making $90k is restricted to an elective deferral of $4500, far short of the $15000 maximum allowed in 2006.

However, if the employer chooses to provide a discretionary P/S contribution, the plan is required to make that type of contribution to ALL ELIGIBLE employees, unlike the match that only requires a contribution to those who actually participate. Therefore, if you enroll in the plan, but choose not to contribute an elective deferral, the plan would still have to include you in the profit sharing contribution calculation. On the other hand, if you DECLINE participation in the plan they are not required to include you in either a match or P/S contribution calculation.

If this is what they're doing it must be a very small company – in order to get away with it. Have they done this with other employees who became eligible? I would think the DOL would be very interested in investigating your assertion further. Send me a PM if you want a contact name and number at the DOL in Atlanta.

The best thing to do is ENROLL in the plan. . . It is your right! Choose an elective deferral you can afford. Invest those dollars wisely and watch the money grow over time. This is the only way you’ll be able to receive in the employer’s contributions, if indeed they make any. Consider it a bonus for you if they do.

There are many different P/S contribution strategies and they may change from year to year. Using the cross tested approach they may choose to contribute a higher amounts to owners, management, but they are required by law to contribute a percentage to the 'all other employee' group as well. In this exmple a 3:1 Gateway would establish that Owners receive 9%, Managers receive 6%, All Others would receive 3% of compensation as defined in the plan document.

Using the age weighted approach the may make higher contributions to older employees in the plan.

Using the integrated approach the may make higher contributions to employees who earn income above the social security threshold.

But, if they make a contribution to some employees they must contribute something to the other employees, as well. And, if the plan is consider top-heavy, they MUST contribute at least 3% to the eligible employees. For a plan to be deemed ‘top-heavy’ a plan provides more than 60 percent of its aggregate accrued benefits or account balances to "key" or "highly compensated" employees. That is both ‘officers’ and ‘owners’ of the company. I suspect the plan has achieved this status and this is why there is a hard sell for you to decline participation in the plan.

KTL

 

[cbg]

You're right, KTL, I phrased it badly. I should have said, based on seniority, not, senior level employees.

 

[kNOwtheLAW]

I should have said, based on seniority, not, senior level employees.

**************...
KTL

 

[mvanleir]

I dont believe an employer can pick and choose whom they match contributions for. If the plan documents states there is a match, there is a match for all who participate. Giving more benefit to HCE's is exactly why there are SO many laws surrounding these plans. You may have misunderstood. Or the person communicating to you about the plan really doesn't know what they are talking about. It can be confusing and many employers assign the administration as a collateral duty and don't offer the training one needs to understand. It may be that the match is available after a specific period of time, that would mean that someone who has been there longer than you will be receiving the match but at some point you will receive the match too.

Enroll in the plan and you will be entitled to the SPD, that will give you the specifics of your plan.

 

[cbg]

As an example, if it says in the plan document that matching will begin when you've been participating in the plan for two years, that's legal, even though it isn't ALL employees.