Employer contribution safe harbor 401k
Employer contribution safe harbor 401k
I am an employee physician in a private practice group. The group offers a safe harbor 401k in which they set aside a 3 percent contribution each year (employer contribution) for each employee. I have had to wait 18 months to be eligible to participate (beginning of 7th month of fiscal year following one year of service) - is this too long to wait? My issue is that the group makes each of us Employee physicians (3 of us) make the Employer contribution for them. In other words, the money that the Employer must contribute on our behalf to satisfy the safe harbor employer contribution is actually taken out of our salary and considered an "allocated expense" against our earnings. Is this legal? They have it written into our employment contract that we signed at the onset that vaguely states that any contribution to the company plan is considered an allocated expense. I never fathomed they meant that we would be responsible for making THEIR employer contribution and have them probably take a tax deduction on it nonetheless.
Re: Employer contribution safe harbor 401k
Be nice, but ask the employer to show you how it was determined that it's legal to do this. Let us know what you find out. Okay?
Frank R. Cirullo |
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"It isn't what we don't know that gives us trouble, it's what we know that ain't so." -- |
Will Rogers
Re: Employer contribution safe harbor 401k
Wow! I am all in favor of the employer doing the "safe harbor", but this is quite "creative".Bizzle wrote:I am an employee physician in a private practice group. The group offers a safe harbor 401k in which they set aside a 3 percent contribution each year (employer contribution) for each employee. I have had to wait 18 months to be eligible to participate (beginning of 7th month of fiscal year following one year of service) - is this too long to wait? My issue is that the group makes each of us Employee physicians (3 of us) make the Employer contribution for them. In other words, the money that the Employer must contribute on our behalf to satisfy the safe harbor employer contribution is actually taken out of our salary and considered an "allocated expense" against our earnings. Is this legal? They have it written into our employment contract that we signed at the onset that vaguely states that any contribution to the company plan is considered an allocated expense. I never fathomed they meant that we would be responsible for making THEIR employer contribution and have them probably take a tax deduction on it nonetheless.
Whether it is "legal" or not - who knows. Maybe their lawyer created that?
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Re: Employer contribution safe harbor 401k
IANAL, but I can't see how this possibly qualifies as an employer "profit" sharing contribution.
Re: Employer contribution safe harbor 401k
This reminds me of "mandatory" voluntary "participation" at some companies and organizations in the company's Political Action Committee or "United Way" types of organizations.
Re: Employer contribution safe harbor 401k
Thanks everyone for their input so far. Does anyone have an idea of how I can ask someone at the IRS about the details of my company's 401k? I'm curious about the IRS's interpretation of the Plan. Thanks.
Re: Employer contribution safe harbor 401k
As spirit Rider said, IANAL. But the way you describe the 3 percent provision does sound potentially problematic. It's unlikely the written plan will reveal anything but a plain vanilla employer matching formula. I wonder if all the docs are paying for this. If they are, you might want to let it go.
The "18 months to participate sounds fine." Many plans require one year for eligibility, after which you must enter into participation within 6 months at the most. See my post for the last thread I responded to, if you want some IRS reading material on minimum participation standards.
You could try calling 877-829-5500 or email retirementplanquestions@irs.gov. They might have access to your plan document but the most they are likely to do would be to write a referral/recommendation that the plan be audited. If that was to happen it might not wind up helping you.
The "18 months to participate sounds fine." Many plans require one year for eligibility, after which you must enter into participation within 6 months at the most. See my post for the last thread I responded to, if you want some IRS reading material on minimum participation standards.
You could try calling 877-829-5500 or email retirementplanquestions@irs.gov. They might have access to your plan document but the most they are likely to do would be to write a referral/recommendation that the plan be audited. If that was to happen it might not wind up helping you.
Re: Employer contribution safe harbor 401k
Not sure I understand exactly what is going on, but see if this way of looking at it (this is how we do it in our group) seems to match what you are describing. Each employee is viewed as a cost center to the practice. The "value" of each position is established and that "value" is considered the "total compensation package" (TCP). From that upper end number are deducted all the group's and individual's expenses associated with being a W-2 employee: healthcare premiums and any other insurance premiums allowed to employees; business expense reimbursement plan, all employer taxes to be withheld and paid on behalf of the employee as well as associated tax costs of employing a person (1/2 FICA+MC and all the FUTA tax), all corporate money paid into retirement plans, free parking, meals and lodging provided for the 'convenience of the employer', continuing education expenses and so forth. Whatever is left over after all these deductions from the "TCP" is considered the employee's taxable income which is further reduced by the employee's salary deferral contribs to the retirement plan and any employee share of insurance premiums to be paid. In our case, the retirement plan is a safe-harbor 401k, but the group's contribution is always more than 3% (usually 12ish % and doesn't require matching but reduces the employee's taxable salary by that amount, again by viewing the employee as a cost center to the group. This approach to business has apparently been sniffed quite a bit without issue. In a sense one could misunderstand and think they were personally funding the safe-harbor share, but it really isn't happening like that.Bizzle wrote:I am an employee physician in a private practice group. The group offers a safe harbor 401k in which they set aside a 3 percent contribution each year (employer contribution) for each employee. I have had to wait 18 months to be eligible to participate (beginning of 7th month of fiscal year following one year of service) - is this too long to wait? My issue is that the group makes each of us Employee physicians (3 of us) make the Employer contribution for them. In other words, the money that the Employer must contribute on our behalf to satisfy the safe harbor employer contribution is actually taken out of our salary and considered an "allocated expense" against our earnings. Is this legal? They have it written into our employment contract that we signed at the onset that vaguely states that any contribution to the company plan is considered an allocated expense. I never fathomed they meant that we would be responsible for making THEIR employer contribution and have them probably take a tax deduction on it nonetheless.
The 18 month waiting period isn't unusual so long as vesting in the plan is immediate once you start participating.
Is the 3% contribution *all* the profit sharing that will be paid into the plan on your behalf? I suspect that if they are looking at the business plan as I've outlined it above, it is quite legal.
Re: Employer contribution safe harbor 401k
Full and immediate vesting is likely not a feature of OP's plan. If the plan had required two years of service, full vesting would then be mandatory.
Re: Employer contribution safe harbor 401k
Ah, I thought the rule was 1 year or longer. Must have misread it. Thanks.mah001 wrote:Full and immediate vesting is likely not a feature of OP's plan. If the plan had required two years of service, full vesting would then be mandatory.
Re: Employer contribution safe harbor 401k
But what of this:BolderBoy wrote:Ah, I thought the rule was 1 year or longer. Must have misread it. Thanks.mah001 wrote:Full and immediate vesting is likely not a feature of OP's plan. If the plan had required two years of service, full vesting would then be mandatory.
"In safe harbor 401(k) plans, all required employer contributions are always 100 percent vested. In traditional 401(k) plans, you can design your plan so that employer contributions become vested over time, according to a vesting schedule." From this site: <http://www.dol.gov/ebsa/publications/401kplans.html>
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Re: Employer contribution safe harbor 401k
I also believe this to be certainly contrary to the intention of the law, if not directly in violation. But you also might want to consider what being out of compliance means to you. If this is declared an invalid practice, then one likely consequence is that the plan will lose it's status as Safe Harbor, which means that highly compensated employees (such as the doctors in the practice) will be severely limited in what they are allowed to contribute. This may not be a result that you desire.IANAL, but I can't see how this possibly qualifies as an employer "profit" sharing contribution.
Re: Employer contribution safe harbor 401k
It's just a label.
In any case - the practice as a business makes a profit on your work. Call it overhead, profit, contribution to others, whatever. The 401k matching comes from gross margin contribution of your services. It really to doesn't make a difference that they actually call it out and label it for you. it would happen one way or the other.
But, in my opinion, it's way, way to late to cry foul.
Did you know the entire economic picture (including 401k) of job you signed up for - BEFORE accepting the position.
In any case - the practice as a business makes a profit on your work. Call it overhead, profit, contribution to others, whatever. The 401k matching comes from gross margin contribution of your services. It really to doesn't make a difference that they actually call it out and label it for you. it would happen one way or the other.
But, in my opinion, it's way, way to late to cry foul.
Did you know the entire economic picture (including 401k) of job you signed up for - BEFORE accepting the position.
Leonard |
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Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? |
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If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Re: Employer contribution safe harbor 401k
Bolder Boy, you're right. The safe harbor match is immediately vested. But the plan could have substantial additional employer contributions, which often are not immediately vested.
Re: Employer contribution safe harbor 401k
Right!mah001 wrote:Bolder Boy, you're right. The safe harbor match is immediately vested. But the plan could have substantial additional employer contributions, which often are not immediately vested.
The bottom line for the OP's original question is that I'd bet there is nothing wrong with how they are funding the safe harbor contribution and it is merely a language usage that is at issue here. As leonard points out, all the money to fund the 401k contribution is coming from the same pot. It isn't like the OP is being required to actually write a check back to the practice to fund the 3% contribution.
At least that isn't what he said.
Re: Employer contribution safe harbor 401k
I learn something new almost every day here. This mandatory 3% safe harbor seems to be a part of the somewhat complex allocation of costs, revenue and "profit" contribution of "employee" physicians in a group. Much different, it seems to me, than the way most "employees" are paid. Based on this, I now lean towards this being proper. Being "safe harbored" for 401k, I suspect, gives the organization's employees at all levels of compensation more stability in being able to contribute as much or as little as the employee chooses.BolderBoy wrote:Right!mah001 wrote:Bolder Boy, you're right. The safe harbor match is immediately vested. But the plan could have substantial additional employer contributions, which often are not immediately vested.
The bottom line for the OP's original question is that I'd bet there is nothing wrong with how they are funding the safe harbor contribution and it is merely a language usage that is at issue here. As leonard points out, all the money to fund the 401k contribution is coming from the same pot. It isn't like the OP is being required to actually write a check back to the practice to fund the 3% contribution.
At least that isn't what he said.
Re: Employer contribution safe harbor 401k
I am, in a sense, having to write them a check to fund the Employer contribution. It is being deducted from my base salary every pay period now.
I appreciate everyone's input. I am not out to get anyone in trouble, etc. I'm just trying to get other input on whether anyone's seen a model like this. Bolder boy, thank you. You were able to clearly outline what I think my practice administrator and plan administrator have been unable to tell me.
I just don't think I should be having to pay out of my base salary....
I appreciate everyone's input. I am not out to get anyone in trouble, etc. I'm just trying to get other input on whether anyone's seen a model like this. Bolder boy, thank you. You were able to clearly outline what I think my practice administrator and plan administrator have been unable to tell me.
I just don't think I should be having to pay out of my base salary....
Re: Employer contribution safe harbor 401k
Just pretend they pay you a little less, and all is fine.I just don't think I should be having to pay out of my base salary....
In truth, you are paying for your partners' kids' orthodonists, an ex-spouse or two and who knows what else. Someone smoke? Forget it, you're paying the increased cost of insurance ... It just is these examples I listed aren't deducted from your paycheck explicitly.
Re: Employer contribution safe harbor 401k
So, if they took the dollars out of your gross salary and called it "Practice Profit" or "practice overhead" you would be OK with those labels. But, if they call it "401k contributions" you care. You realize it doesn't matter right. the same amount is gone no matter what it's labeled.Bizzle wrote:I am, in a sense, having to write them a check to fund the Employer contribution. It is being deducted from my base salary every pay period now.
I appreciate everyone's input. I am not out to get anyone in trouble, etc. I'm just trying to get other input on whether anyone's seen a model like this. Bolder boy, thank you. You were able to clearly outline what I think my practice administrator and plan administrator have been unable to tell me.
I just don't think I should be having to pay out of my base salary....
Leonard |
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Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? |
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If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.