My Company Didn't Update my 401K Contribution Amount

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Topic Author
mjedwards409
Posts: 39
Joined: Sat Mar 30, 2019 5:30 pm

My Company Didn't Update my 401K Contribution Amount

Post by mjedwards409 »

First of all, before we start, I know this ultimately falls on me, but it's frustrating nonetheless, and I also have to figure out a way to minimize the damage. (So no need for the "you should have been checking more closely, this is on you") I got it, I'm already blaming myself. :happy

Brief background, 34, married with two kids and a third on the way. I'm the sole provider. I'm in a Sales Management gig making $145K salary and probably $35K extra or so in bonus money. I try to max out my 401K yearly as well as my Roth IRA and my wife's, as well as our HSA. On top of that most of my extra money goes towards a Vanguard taxable fund.

Now, here's the situation. My company's 401K match (4%) is done quarterly, so if I hit the annual contribution limit too early in the year, it's possible I could miss taking advantage of my 4th quarter match. I was in just such a position last year so I lowered my contribution rate down to 8% for the 3rd quarter and beyond to be sure I spread it out. The first week of January this year, I upped my contribution back to 13% with Fidelity. I got the confirmation email that the contribution amount was updated. I just checked today, and notice the numbers didn't look right YTD. Turns out, my payroll department never updated what was actually being withheld from my checks, so I've been at 8% the whole time.

So I did the math, and with my every other week pay schedule, I'm going to have to contribute 30% per paycheck for the rest of the year to hit my $19.5K. (I have one bonus check for $10K or so that will come in Q2, so technically we'll be "fine", but it still stings)

It also stings that I missed some opportunity by buying nearly 40% fewer shares all through the pandemic, but I guess maybe it evens out because I also bought 40% less the months leading up to the pandemic as well.

As long as I can budget the rest of the year, is there any real downside to pumping money in all through Q4 to try and hit the $19.5K number this year? Any insight here or anything I'm not already thinking of is appreciated. Thanks!
Broken Man 1999
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Broken Man 1999 »

mjedwards409 wrote: Mon Sep 28, 2020 2:55 pm First of all, before we start, I know this ultimately falls on me, but it's frustrating nonetheless, and I also have to figure out a way to minimize the damage. (So no need for the "you should have been checking more closely, this is on you") I got it, I'm already blaming myself. :happy

Brief background, 34, married with two kids and a third on the way. I'm the sole provider. I'm in a Sales Management gig making $145K salary and probably $35K extra or so in bonus money. I try to max out my 401K yearly as well as my Roth IRA and my wife's, as well as our HSA. On top of that most of my extra money goes towards a Vanguard taxable fund.

Now, here's the situation. My company's 401K match (4%) is done quarterly, so if I hit the annual contribution limit too early in the year, it's possible I could miss taking advantage of my 4th quarter match. I was in just such a position last year so I lowered my contribution rate down to 8% for the 3rd quarter and beyond to be sure I spread it out. The first week of January this year, I upped my contribution back to 13% with Fidelity. I got the confirmation email that the contribution amount was updated. I just checked today, and notice the numbers didn't look right YTD. Turns out, my payroll department never updated what was actually being withheld from my checks, so I've been at 8% the whole time.

So I did the math, and with my every other week pay schedule, I'm going to have to contribute 30% per paycheck for the rest of the year to hit my $19.5K. (I have one bonus check for $10K or so that will come in Q2, so technically we'll be "fine", but it still stings)

It also stings that I missed some opportunity by buying nearly 40% fewer shares all through the pandemic, but I guess maybe it evens out because I also bought 40% less the months leading up to the pandemic as well.

As long as I can budget the rest of the year, is there any real downside to pumping money in all through Q4 to try and hit the $19.5K number this year? Any insight here or anything I'm not already thinking of is appreciated. Thanks!
Yea, you missed out on paying the lower prices for equities when the market took a dump. And, if the current generally rising market continues, you will pay more for your equity shares. Bummer!

Maybe HR can suggest a remedy. Seems to be their mistake.

Good luck! Tough lesson for sure.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Olemiss540
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Olemiss540 »

Just top it up through the end of the year. Deplete a few grand from taxable if you really have to in order to capture the tax savings from your 401k contributions. Seems like a wash to me and good thing you checked!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
260chrisb
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Re: My Company Didn't Update my 401K Contribution Amount

Post by 260chrisb »

So suck it up and contribute 30% for the remainder of the year so you reach the max and move on in life. You make good money, you're maxing out all of your options and you're 34!! What little you missed out over the past 4-5 months based on the amount you would have contributed isn't going to make a difference 25 years from now or 2 years from now. Next time you make a change check your payroll deductions sooner so it doesn't happen again. First world problem!! Well done! :happy
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Brianmcg321
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Brianmcg321 »

I've had something similar happen but it was the opposite. I was contributing 15% into a traditional 401K. Then I changed it to 11% in a Roth 401k. I received my confirmation emails etc. Then on payday, my payroll department took out 11% for the Roth and 15% for the Traditional. LOL. I ended up having two pay periods where they took out 26% of my pay. Not too bad, and it was in March/April, so it worked out ok as far as that goes.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Topic Author
mjedwards409
Posts: 39
Joined: Sat Mar 30, 2019 5:30 pm

Re: My Company Didn't Update my 401K Contribution Amount

Post by mjedwards409 »

Thanks for the advice all.... just spoke to a Director in the Retirement Dept. Very simple explanation, someone from Payroll got the notification from Fidelity and just flat out didn't do anything with it. Stings for sure that I missed out on so many months of the down market, but I guess it's better than not finding out until 2021 that I hadn't contributed nearly the amount I thought.

30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
Broken Man 1999
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Broken Man 1999 »

mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm Thanks for the advice all.... just spoke to a Director in the Retirement Dept. Very simple explanation, someone from Payroll got the notification from Fidelity and just flat out didn't do anything with it. Stings for sure that I missed out on so many months of the down market, but I guess it's better than not finding out until 2021 that I hadn't contributed nearly the amount I thought.

30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
You could always tell her that since she wasn't affected, she could still give you a great gift!! :P

Did anyone offer any measures the company might take, or was it like too bad, so sad?

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
JD2775
Posts: 605
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Re: My Company Didn't Update my 401K Contribution Amount

Post by JD2775 »

mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm Thanks for the advice all.... just spoke to a Director in the Retirement Dept. Very simple explanation, someone from Payroll got the notification from Fidelity and just flat out didn't do anything with it. Stings for sure that I missed out on so many months of the down market, but I guess it's better than not finding out until 2021 that I hadn't contributed nearly the amount I thought.

30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:

Yea it could have been worse had you not noticed this until next year. At least you have enough time to catch up for 2020. I know this may seem overkill, but this is why I check my contributions almost every pay period, or at least monthly, in my 401k account. To catch incorrect contributions, or missed contributions entirely, etc.
Topic Author
mjedwards409
Posts: 39
Joined: Sat Mar 30, 2019 5:30 pm

Re: My Company Didn't Update my 401K Contribution Amount

Post by mjedwards409 »

Interesting - I posted this on Reddit too for advice, and someone actually brought the below to my attention:

If I’m reading this right, it appears I may be eligible for my company to reimburse half of the missed deferral amount, (13% - 8% *0.5 = 2.5%), plus the market growth that would have come from the 2.5%.

I wonder if this is applicable to my situation? If so, I still need to see if whatever amount they're willing to insert into my 401K on my behalf goes against the $19,500 federal max?

https://www.irs.gov/retirement-plans/fi ... elections

As in the case of an erroneous exclusion of an employee from the plan, the remedy requires the employer to make a corrective contribution of 50% of the missed deferral (adjusted for earnings) on behalf of the affected employee. The employee is fully vested in those contributions, which are subject to the same withdrawal restrictions that apply to elective deferrals.
Spirit Rider
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Spirit Rider »

You were not exlcluded from the plan. So that reference is not directly applicable.

However, this is a serious plan error and the plan is required to remedy it under the IRS Employee Plans Compliance Resolution System (EPCRS).

IRS Rev. Proc. 2019-19 contains the requirements for them doing so. The remedy may be the same or similar.
ryman554
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Re: My Company Didn't Update my 401K Contribution Amount

Post by ryman554 »

mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm 30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
Why?

Let's say that 8% of 3 quarters and 30% of 1 quarter of the year equals 13% all year or whatever. Fine. In both cases you still put $19.5k in the 401(k) and get the same tax breaks.

Why does backloading the 401(k) create a cheap Christmas when, in either case, you end up with the same take-home pay over the course of the year?
Topic Author
mjedwards409
Posts: 39
Joined: Sat Mar 30, 2019 5:30 pm

Re: My Company Didn't Update my 401K Contribution Amount

Post by mjedwards409 »

ryman554 wrote: Tue Sep 29, 2020 9:03 am
mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm 30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
Why?

Let's say that 8% of 3 quarters and 30% of 1 quarter of the year equals 13% all year or whatever. Fine. In both cases you still put $19.5k in the 401(k) and get the same tax breaks.

Why does backloading the 401(k) create a cheap Christmas when, in either case, you end up with the same take-home pay over the course of the year?
Because anything extra went towards my taxable fund or paying of debt. My net worth will still be the same but will be lighter on cash. I don’t plan on cashing out anything from my taxable at this point.
MathIsMyWayr
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Re: My Company Didn't Update my 401K Contribution Amount

Post by MathIsMyWayr »

DW was in a similar situation a few years ago. The payroll failed to deduct the proper amount for 403(b) or 457(b) for many months until she found out with two monthly paychecks remaining for the year. There was no way to reach the yearly maximum contribution. She went to the payroll and they accepted a check for the missed amount. Did she miss the market gain? Yes, but the market gain went to the taxable instead of the tax deferred. Nothing to sweat about.
Walkure
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Re: My Company Didn't Update my 401K Contribution Amount

Post by Walkure »

mjedwards409 wrote: Tue Sep 29, 2020 9:48 am
ryman554 wrote: Tue Sep 29, 2020 9:03 am
mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm 30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
Why?

Let's say that 8% of 3 quarters and 30% of 1 quarter of the year equals 13% all year or whatever. Fine. In both cases you still put $19.5k in the 401(k) and get the same tax breaks.

Why does backloading the 401(k) create a cheap Christmas when, in either case, you end up with the same take-home pay over the course of the year?
Because anything extra went towards my taxable fund or paying of debt. My net worth will still be the same but will be lighter on cash. I don’t plan on cashing out anything from my taxable at this point.
You could switch off dividend reinvestment in taxable for the December distributions and be the guy who saved Christmas. :moneybag
ryman554
Posts: 1322
Joined: Sun Jan 12, 2014 9:44 pm

Re: My Company Didn't Update my 401K Contribution Amount

Post by ryman554 »

mjedwards409 wrote: Tue Sep 29, 2020 9:48 am
ryman554 wrote: Tue Sep 29, 2020 9:03 am
mjedwards409 wrote: Mon Sep 28, 2020 3:44 pm 30% contributions for the rest of the year so I told my wife it would be a cheap Christmas this year. :oops:
Why?

Let's say that 8% of 3 quarters and 30% of 1 quarter of the year equals 13% all year or whatever. Fine. In both cases you still put $19.5k in the 401(k) and get the same tax breaks.

Why does backloading the 401(k) create a cheap Christmas when, in either case, you end up with the same take-home pay over the course of the year?
Because anything extra went towards my taxable fund or paying of debt. My net worth will still be the same but will be lighter on cash. I don’t plan on cashing out anything from my taxable at this point.
Ah. You have re-discovered "lifestyle creep" -- in this case for good, not for ill. =)

<unwanted advice>: You probably shouldn't be investing in taxable (generally) unless you've paid off your debt (granted, depends on the interest rate).

However, this also means you aren't keeping good track of your monthly cashflow -- otherwise you would have noticed "extra" money that shouldn't have been there. Always always do a GRC with what you expect vs. what you actually get in term of income and outflow. Helps spot things like this before they get out of hand.

I know what my paycheck is going to be, and if I make a change I know that I expect something different. So, if it's not, then I need to see why.

Tell you wife the Xmas present is an earlier retirement. Depending on the wife, that could be only slightly better than a lump of coal, but it sounds like you've got a good one.
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