Shady activity with our Safe Harbor 401(k)

[LittleWarrior]

Illinois.

Hello,
My company announced that we're starting a Safe Harbor 401(k). They informed us that the company would be contributing 3% of our annual salary to the plan. Making it sound like the company would be making this contribution from their own funds. At the end of the meeting it was revealed that at our annual performance review, 3% or our raise would be going into the 401(k). There will be no additional 3% of the company's funds that would constitute a 3% match. The only 3% will be coming out of our raise. I understand that a company is not legally obligated to give raises, so it could be viewed that the 3% is in fact the company's money.

2 questions:

1. Is this legal? They are in a sense forcing us to contribute to this retirement fund.

2. Can I opt out? My HR director told me I cannot opt out but I suspect that would be illegal as well.

Please help. Thanks!

 

[tranquility]

If it is legal or not depends on the specific phrasing. Yet, you clearly benefit if the company puts more into your retirement than your salary. Maybe not today, but someday.

You can "opt out" by quitting.

Really, this is a new world. General benefits to the collective only works in countries about to go broke.

 

[LittleWarrior]

There must be a way to opt out, besides quitting.

It just doesn't seem fair that we are being forced to put 3% of our raise into this account. Many of us have our own IRA's which is equivalent to this 401(k) that is not being matched by the company.

 

[Beth3]

If you get a raise of $1,000 per year, 3% of that is $30. Hardly worth making a fuss over the deferral amount or resigning. Or maybe I'm not understanding how the math works. Are they saying that if you get a 3% raise, the entire dollar amount will go into the 401(k) Plan?

 

[LittleWarrior]

3% would be taken from the entire salary amount, not the raised portion. So if my raise was a 3% raise equalling $1000, that entire $1000 will go to the 401(k).

I have no intentions of resigning over this. Just want to know if they're allowed, by law, to do this. And if they are, can I simply opt out. They're telling me that I cannot opt out because the money is a "bonus" that I otherwise would not get. Seems like they're exploiting a loop hole by using our raise as their 3% contribution and I probably don't have much fight in the matter.

 

[cbg]

Unless the plan document specifically says you can opt out, you can't. 401k plans are very, very rigidly overseen by the Federal government, and neither you nor the employer can vary from what the plan document says by one iota.

 

[Beth3]

They informed us that the company would be contributing 3% of our annual salary to the plan.

Then your employer expressed correctly exactly what they plan to do - contribute (not match) 3% of YOUR annual salary. Yes, they can make participation and the contribution mandatory. Whether you can opt out of participation will depend upon the specifics of the Plan Document.

 

[davew128]

Then your employer expressed correctly exactly what they plan to do - contribute (not match) 3% of YOUR annual salary. Yes, they can make participation and the contribution mandatory.

They most certainly can NOT. A safe harbor plan is funded by matching up to 3% of salary with EMPLOYER contributions for all ELIGIBLE plan participants not all ACTIVE eligible plan participants. That means all people eligible to participate will get an amount equal to 3% of the salaries contributed to the plan on their behalf from COMPANY money, whether they have contributions of their own OR NOT.

What this employer is doing is 100% legal unless it is violating some sort of collective bargaining agreement. It's wrong, but legal.