Employer 401K Losing Out of Matched Money

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
appleseed88
Posts: 7
Joined: Fri Oct 23, 2020 4:27 pm
Location: Colorado

Employer 401K Losing Out of Matched Money

Post by appleseed88 »

Hi folks, I'm a sales guy. I have a standard base salary but I make the majority of my income in commission, which is paid out once a month. It fluctuates slightly, but generally stays within + or - $5k.

My employer unfortunately only matches on a per payroll basis as long as I, the employee, make a contribution. I did not know this. I front loaded my commission check in February and have already hit $19,500 contribution max. My HR department is telling me the plan does not have a "true up" mechanism and that I am basically screwed out of getting any future company-match for the rest of 2021. This roughly amounts to about $10K I will miss out in company matched funds.

My HR Department says the company is not allowed to change to a plan, mid-year, to one that will have a true up mechanism, due to ERISA laws. They are basically telling me to kick sand and that I am out of luck. The majority of employees at my company are lower paid non skill work, and there are few commission-based employees, so something like this basically effects no one but me and they don't seem to care.

I don't understand how, when the plan administrator has a fiduciary duty, they can't figure out a way to settle this up with me. Also, no one from the company warned me that by front loading commission contribution, I would not be eligible for company matches the rest of the year.

I researched around online and many articles mention the requirement of employees having to be issued a Summary Plan Description, which I don’t recall ever being given since the company had just this year switched to a new 401K firm.

Do I have a basis to make any sort of claim, such as an ERISA claim?
Last edited by appleseed88 on Wed Mar 31, 2021 9:53 am, edited 1 time in total.
Silk McCue
Posts: 5223
Joined: Thu Feb 25, 2016 7:11 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by Silk McCue »

Sorry that you didn't make certain you knew how your company plan works. That is on you not them. They did nothing wrong.

Cheers
hnd
Posts: 389
Joined: Mon Jun 22, 2020 11:43 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by hnd »

it definitely sounds screwy but when we switched 401k's our company discussed this possibility with us in sales. but that rule never happened. Sales people tend to do it this way i've found, use excess commissions to fund their 401k's so I definitely feel like this is something that should of been discussed.

I also know about the rigid "can't change the rules" bullcrap HR will always try and pull which is most of the time not true.

Is it something to walk over? Thats up to you to decide. I would definitely talk to my boss about it as crap like this can affect your drive and motivation. Something that is imperative to have in sales.
scophreak
Posts: 159
Joined: Tue Jan 12, 2016 1:17 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by scophreak »

Often the SPD is available through your company HR or benefits website. Mine is also available through the brokerage (Fidelity). In my experience, this document isn't something that is "delivered" directly to you either electronically or hard copy. Instead, it is made available to you should you have the need to refer to it.

Unfortunately, it appears that this is on you. The lack of a true-up is certainly non-ideal but is not necessarily uncommon.
User avatar
CyclingDuo
Posts: 4153
Joined: Fri Jan 06, 2017 9:07 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by CyclingDuo »

appleseed88 wrote: Wed Mar 31, 2021 8:15 am Hi folks, I'm a sales guy. I have a standard base salary but I make the majority of my income in commission, which is paid out once a month. It fluctuates slightly, but generally stays within + or - $5k.

My employer unfortunately only matches on a per payroll basis as long as I, the employee, make a contribution. I did not know this. I front loaded my commission check in February and have already hit $19,500 contribution max. My HR department is telling me the plan does not have a "true up" mechanism and that I am basically screwed out of getting any future company-match for the rest of 2021. This roughly amounts to about $10K I will miss out in company matched funds.

My HR Department says the company is not allowed to change to a plan, mid-year, to one that will have a true up mechanism, due to ERISA laws. They are basically telling me to kick sand and that I am out of luck. The majority of employees at my company are lower paid non skill work, and there are few commission-based employees, so something like this basically effects no one but me and they don't seem to care.

I don't understand how, when the plan administrator has a fiduciary duty, they can't figure out a way to settle this up with me. Also, no one from the company warned me that by front loading commission contribution, I would not be eligible for company matches the rest of the year.

I researched around online and many articles mention the requirement of employees having to be issued a Summary Plan Description, which I don’t recall ever being given since the company had just this year switched to a new 401K firm.

Do I have a basis to make any sort of claim, such as an ERISA claim?
Did you understand how your company plan worked before choosing to front-load your contributions for the year? Always good to check all of the plan documents before doing it, as there are many threads like this here at BH where employees were unaware of this scenario with their zeal to front load the year's contributions.

At least you'll know for next year...

In the meantime - do you have other investment vehicles to contribute to for the remainder of the year (Roth IRA, HSA, taxable account, etc...)?

CyclingDuo
Last edited by CyclingDuo on Wed Mar 31, 2021 8:53 am, edited 1 time in total.
"Save like a pessimist, invest like an optimist." - Morgan Housel
runner3081
Posts: 4012
Joined: Mon Aug 22, 2016 3:22 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by runner3081 »

You are not a victim of anything other than ignorance of how your employer plan works.
Soon2BXProgrammer
Posts: 1908
Joined: Mon Nov 24, 2014 11:30 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by Soon2BXProgrammer »

misread a comment -- deleted.
User avatar
ClevrChico
Posts: 2010
Joined: Tue Apr 03, 2012 8:24 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by ClevrChico »

It's a good lesson learned, I guess. Small potatoes in the grand scheme of things. At least you caught it early?
barnaclebob
Posts: 4410
Joined: Thu Aug 09, 2012 10:54 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by barnaclebob »

My megacorp does not true up but does allow contributions up to the $57k employer+employee match. Its up to your to know the rules of the game before you play. It sucks to pay life tuition but it happens to all of us at some point.
Last edited by barnaclebob on Wed Mar 31, 2021 9:01 am, edited 2 times in total.
User avatar
Wiggums
Posts: 3642
Joined: Thu Jan 31, 2019 8:02 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by Wiggums »

I’m sorry that you have this issue. The plans that I participated in all had caps on the matching component. For example, match up to 6% per pay period. Regardless of the plan rules, payroll system are complex and it is not easy to undo this payroll transaction, IRS feed, etc. if the folks who run your payroll have never reversed this type of transact before, they are not likely to try it without testing and programming support.
Last edited by Wiggums on Wed Mar 31, 2021 9:51 am, edited 1 time in total.
sailaway
Posts: 2991
Joined: Fri May 12, 2017 1:11 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by sailaway »

Your company is correct in saying that they can't make changes to the rules.

This is one reason that discussions here at bogleheads always say to check how your matching program works before front loading and when making mega backdoor decisions.

While your frustration is understandable -$10k is a lot of money to watch slip through your hands-, it is misplaced. Can you squeeze out an extra $10k of savings this year to make up for it? Could you check the plan documents for mega backdoor provisions, which have potential to save you a lot in taxes over time?

If you have made it sound like your HR/payroll contacts are incompetent or have used language like "screwing me over" you may want to take the time to apologize for taking your frustration out on the wrong people.
backpacker61
Posts: 626
Joined: Wed May 20, 2020 6:36 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by backpacker61 »

A couple weeks ago, I adjusted the contribution percentage from my pay to even out my 401K plan contributions across the remaining months of 2021, so that employer match contributions will occur every pay period. There are so many moving parts to the calculation; salary deferrals to regular and after-tax contributions, bonus pay deferrals to regular and after-tax contributions, and employer matching contributions. The sum of all of these together is limited to the Section 415(c)(1)(A) limit, the regular contributions limited to 26000 (for over 50 people), and I do want to try to reach and very slightly exceed that 415(c)(1)(A) limit with the last contribution in December 2021. Then payroll will limit my contribution to ensure the 415(c)(1)(A) limit is not exceeded, while still getting the employer match. I did this in google sheets, and part of it involved just guessing what bonus pay amounts will be months in advance. I expect I will do this again late in the year; in October or November, to even out contributions across the remainder of the year.

I'm sympathetic to your situation, but agree with others that the responsibility is on you to log into your 401K provider's web site and familiarize yourself with the plan documents, investment choices offered, etc.

Many people aren't fortunate to work for an employer that even offers a DC retirement plan benefit; there isn't a requirement that employers offer one.
Last edited by backpacker61 on Wed Mar 31, 2021 9:26 am, edited 5 times in total.
“Now shall I walk or shall I ride? | 'Ride,' Pleasure said; | 'Walk,' Joy replied.” | | ― W.H. Davies
User avatar
Brianmcg321
Posts: 1351
Joined: Mon Jul 15, 2019 8:23 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by Brianmcg321 »

Lesson learned. Don’t do that next year.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
User avatar
neurosphere
Posts: 4033
Joined: Sun Jan 17, 2010 1:55 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by neurosphere »

appleseed88 wrote: Wed Mar 31, 2021 8:15 am My employer unfortunately only matches on a per payroll basis as long as I, the employee, make a contribution. I did not know this.
People here are giving you a hard time for this. Don't take it personally (although I do think some of the criticism sound mean and could have been phrased diplomatically). I think they were reacting to the tone of your post which reads as if you think you've been wronged and want to fight back, but really your experience is just how things work in many cases.

All the main points have already been made, and essentially what you are describing is a plan "feature" that's common. It is what it is, and your employer is correct that it can't be changed/waived/amended easily, and there is likely little incentive to do so.

I know people who have gone many years not realizing they have missed out on a substantial portion of the match, because they didn't double check how much match they ended up getting in total each year. The good news is "now you know" and that you've found this site and will hopefully stick around and continue to learn and teach on additional financial topics.

No one has responded to your SPD question. It seems that perhaps you think that your employer did not satisfy their notification obligations in some way, i.e. about existence/access to the SPD. I have no insights into this question about what exactly are the laws which apply to the specific mechanism/nature of disclosures. That's a highly technical area I suppose. Even if somehow they violated this obligation, it's yet another situation regarding what kind of recourse you may have. Perhaps you can "get back" your contributions? And then start contribution anew? I suspect the legal costs would far exceed the lost match. It would also likely sour your relationship with your employer. That said, if you can find specifics on these obligations, I'm curious to learn more. But i'm guessing there was some email or webpage with super fine print at the bottom which said to contact X person to see Y document if your have questions about the plan. :annoyed
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
User avatar
JoeRetire
Posts: 7653
Joined: Tue Jan 16, 2018 2:44 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by JoeRetire »

appleseed88 wrote: Wed Mar 31, 2021 8:15 am My employer unfortunately only matches on a per payroll basis as long as I, the employee, make a contribution. I did not know this.
Why didn't you know this?

Sorry to say, it seems like you crewed yourself.
Do I have a basis to make any sort of claim, such as an ERISA claim?
No. You have no basis.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
dukeblue219
Posts: 1293
Joined: Fri Jan 29, 2016 12:40 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by dukeblue219 »

Without too much judgment on OP I'll say this has been the case for every 401k I've had and the federal government's TSP. They've always been clear that you need to avoid hitting the cap lest you miss out on additional matching contributions.

Look at it this way-if the market roars the rest of 2021 you'll still be better off having front loaded, even without a match.
flyfishers83
Posts: 87
Joined: Fri Jun 07, 2019 6:08 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by flyfishers83 »

Just adding that there are lots of different rules around plans and the rules change. Until this year, my employer did not allow 401k withholding from bonuses. Employer also changed match calculation last year to my detriment and further eliminated altogether this year. On the plus side employer just added an after tax option, so now I need to figure out the mechanics for doing a mega backdoor Roth.

Wife’s employer moved the Jan. 1 paycheck to 12/31 last year. By the time I found out, it was too late to change contributions, so we maxed out early and didn’t get matching on that paycheck.

Basically, it’s in your interest to confirm the plan details every year and double/triple check your calculations throughout the year.
bernina
Posts: 23
Joined: Sun Nov 03, 2019 4:25 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by bernina »

Does your plan allow for after tax contribution, and if so, do they match those? My megacorp plan recently changed to allow matching on after tax and it offers a lot more flexibility and nearly eliminates the risk of not getting the full match.
KyleAAA
Posts: 8796
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Employer 401K Screwing Me Out of Matched Money

Post by KyleAAA »

This is how the majority of plans work, IME. Always best to double check before front loading.
Tingting1013
Posts: 1069
Joined: Mon Aug 24, 2020 5:44 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by Tingting1013 »

dukeblue219 wrote: Wed Mar 31, 2021 9:18 am Look at it this way-if the market roars the rest of 2021 you'll still be better off having front loaded, even without a match.
Good thought but market would have to roar +50% immediately and stay there for the balance of the year for that to be the case.

Otherwise DCA with match wins out.
MishkaWorries
Posts: 727
Joined: Wed Aug 14, 2019 4:39 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by MishkaWorries »

Is it possible to get your excess contributions returned from an 401K? I know you can do that in IRAs.

It's worth an ask.
We plan. G-d laughs.
Grogs
Posts: 774
Joined: Tue Mar 24, 2015 4:55 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by Grogs »

bernina wrote: Wed Mar 31, 2021 9:29 am Does your plan allow for after tax contribution, and if so, do they match those? My megacorp plan recently changed to allow matching on after tax and it offers a lot more flexibility and nearly eliminates the risk of not getting the full match.
Good suggestion. That's how my plan works. If I hit the $19.5k limit in November, the December contribution will go into after-tax and I'll still get the match in my pre-tax account. If that's an option, OP could contribute just the minimum to capture the full match for the rest of the year.

Unfortunately, like the OP, I've found that even the people in benefits don't always know exactly how all the moving parts in the plan works. The number of people who max their contributions, much less max them early is small and so they rarely deal with it. I've figured things out by reading the SPD and at times simply experimenting to see what happens.
sidwin516
Posts: 99
Joined: Fri Feb 26, 2021 2:46 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by sidwin516 »

ask if your company allows in plan conversions. IF they do, then convert you the commission amount into the mega roth plan. This will allow u to continue to contribute to your 401k. you then set the contribution to be whatever they allow to match... 5% etc.
User avatar
goingup
Posts: 4021
Joined: Tue Jan 26, 2010 1:02 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by goingup »

It's disappointing but lack of a "true up" provision is pretty common in my experience. My SO often hit the cap early due to lumpy compensation. Next year you'll know.
User avatar
SmileyFace
Posts: 6347
Joined: Wed Feb 19, 2014 10:11 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by SmileyFace »

This is probably going to be in the live and learn column. Always understanding how matching is paid out and what parts of your pay include 401K contributions is key. This happened to me many years ago and I have since learned to plan and adjust accordingly to get full matching. I have had the same problem at 3 different companies so the problem (or rather planning challenge) isn't isolated to your company. I am also paid on commissions so feel your pain of it being hard to predict when you will max and hard to plan for the match. Normally commissions are paid out the following month of deal closures giving time to pull back contribution percentage before you preload too heavily.
Last edited by SmileyFace on Wed Mar 31, 2021 9:58 am, edited 1 time in total.
sailaway
Posts: 2991
Joined: Fri May 12, 2017 1:11 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by sailaway »

sidwin516 wrote: Wed Mar 31, 2021 9:43 am ask if your company allows in plan conversions. IF they do, then convert you the commission amount into the mega roth plan. This will allow u to continue to contribute to your 401k. you then set the contribution to be whatever they allow to match... 5% etc.
I don't think you can retroactively say "oh that was after tax," if that is what you are implying here. You certainly cannot just put money in, convert it, then defer some more, which is what you have actually said here.
User avatar
beyou
Posts: 3735
Joined: Sat Feb 27, 2010 3:57 pm
Location: Northeastern US

Re: Employer 401K Losing Out of Matched Money

Post by beyou »

bernina wrote: Wed Mar 31, 2021 9:29 am Does your plan allow for after tax contribution, and if so, do they match those? My megacorp plan recently changed to allow matching on after tax and it offers a lot more flexibility and nearly eliminates the risk of not getting the full match.
Great idea to explore.
Katietsu
Posts: 4641
Joined: Sun Sep 22, 2013 1:48 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by Katietsu »

I would feel really bad if this happened to me. But I would not be blaming the people who are just doing their jobs. It happened, lessen learned. As the overwhelming response here shows, they did nothing wrong.

What to do now?
-Get your plan description. Make sure there are no legit ways around this such as matching after tax contributions. And learn to avoid any future missteps.
-If your personal interactions displayed the same attitude as your OP, apologize to those on the receiving end. Especially since your received competent knowledgeable answers which is not always the case with HR and retirement benefits.
-Depending on your company, you could consider how a request for a bonus that replaces the lost match would be received. You would only be out the tax benefit which is better than just being out.
Tingting1013
Posts: 1069
Joined: Mon Aug 24, 2020 5:44 pm

Re: Employer 401K Screwing Me Out of Matched Money

Post by Tingting1013 »

Katietsu wrote: Wed Mar 31, 2021 9:59 am
-If your personal interactions displayed the same attitude as your OP, apologize to those on the receiving end. Especially since your received competent knowledgeable answers which is not always the case with HR and retirement benefits.
OP is looking to sue his company, I think he’s a bit far gone for grace.
User avatar
beyou
Posts: 3735
Joined: Sat Feb 27, 2010 3:57 pm
Location: Northeastern US

Re: Employer 401K Screwing Me Out of Matched Money

Post by beyou »

runner3081 wrote: Wed Mar 31, 2021 8:51 am You are not a victim of anything other than ignorance of how your employer plan works.
Unfortunately people are quick to complain without understanding.
My employer has a solution that prevents this issue, which is good since we have lots of persons on commission and capable of maxing out early in the year. The solution is to grant the match in entirety at end of the year. This way it does not matter whether you front load or not.

Downsides that people complain about :
What if I leave before year end - tough luck, rewards are for those who stay not those who quit.

Upsides that people forget when complaining :
1) Front loading benefit true up.
2) Quicker vesting of the match. Many employers give matches through the year but may have a vesting period so you can lose the match.
Essentially our "vesting period" is waiting until year end payout. I have had other benefits vest over 4 years vs 1 for this benefit.
Maybe some have immediate vesting and pay through the year, lucky you.

Point is you must learn about your plan AND understand that not all plans are the same, read about it and see what you get, understand the traps and pros/cons before complaining/making a mistake.
We're wolves
Posts: 62
Joined: Mon Aug 03, 2020 2:25 pm

Re: Employer 401K Losing Out of Matched Money

Post by We're wolves »

appleseed88 wrote: Wed Mar 31, 2021 8:15 am

Do I have a basis to make any sort of claim, such as an ERISA claim?
Are you happy at your job? Do you really want to go to war with your employer over this?
Mathematicus
Posts: 9
Joined: Tue Nov 06, 2018 10:46 pm

Re: Employer 401K Losing Out of Matched Money

Post by Mathematicus »

If your employer allows after-tax 401k contributions, you might be able to receive the remainder of the match by making them. My employer allows this and I use it with in-plan Roth conversions.

After-tax contributions are subject to the $57k total contribution limit, rather than the $19.5k limit.
sidwin516
Posts: 99
Joined: Fri Feb 26, 2021 2:46 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by sidwin516 »

sailaway wrote: Wed Mar 31, 2021 9:53 am
sidwin516 wrote: Wed Mar 31, 2021 9:43 am ask if your company allows in plan conversions. IF they do, then convert you the commission amount into the mega roth plan. This will allow u to continue to contribute to your 401k. you then set the contribution to be whatever they allow to match... 5% etc.
I don't think you can retroactively say "oh that was after tax," if that is what you are implying here. You certainly cannot just put money in, convert it, then defer some more, which is what you have actually said here.
fidelity allowed me. i've been doing it for years. the fidelity rep said that's how the mega works. she said u convert so it drops the balance below a 19,500 deposit amount and therefore the deposits keep on going. now she did say u have to convert the deposit and not the earnings or move the earnings to another pretax account.

either ways OP can start adding still contribute his salary and have the employer match it moving forward if they said they won't convert what is there. after 3 years my old company has auto conversion so i don't call in anymore. it converts the moment it goes in. it was a pita to call to convert every quarter....
MrJedi
Posts: 583
Joined: Wed May 06, 2020 11:42 am

Re: Employer 401K Screwing Me Out of Matched Money

Post by MrJedi »

sidwin5 in16 wrote: Wed Mar 31, 2021 10:16 am
sailaway wrote: Wed Mar 31, 2021 9:53 am
sidwin516 wrote: Wed Mar 31, 2021 9:43 am ask if your company allows in plan conversions. IF they do, then convert you the commission amount into the mega roth plan. This will allow u to continue to contribute to your 401k. you then set the contribution to be whatever they allow to match... 5% etc.
I don't think you can retroactively say "oh that was after tax," if that is what you are implying here. You certainly cannot just put money in, convert it, then defer some more, which is what you have actually said here.
fidelity allowed me. i've been doing it for years. the fidelity rep said that's how the mega works. she said u convert so it drops the balance below a 19,500 deposit amount and therefore the deposits keep on going. now she did say u have to convert the deposit and not the earnings or move the earnings to another pretax account.

either ways OP can start adding still contribute his salary and have the employer match it moving forward if they said they won't convert what is there. after 3 years my old company has auto conversion so i don't call in anymore. it converts the moment it goes in. it was a pita to call to convert every quarter....
I think you may be mixing a couple strategies and/or steps.

Unlike IRAs, there are no recharacterizations of 401k ccontributions.

The 19.5k limit thing you are referring to I believe is the after tax contribution, which is not subject to the 19.5k limit. However you have to elect it as an after tax contribution in the first place, not change it after the fact. After you have an after tax contribution, it is possible to do a Roth conversion on it and not pay tax on the basis, which is the conversion step you are referring to I believe.
marathonfi
Posts: 36
Joined: Thu Dec 05, 2019 8:34 am

Re: Employer 401K Losing Out of Matched Money

Post by marathonfi »

I have no idea if my employer 401k has a true up policy, but I have always assumed the worst case, so I usually leave enough room for the employer match at 6% after front loading.

Sorry about the lost money.
User avatar
firebirdparts
Posts: 2401
Joined: Thu Jun 13, 2019 4:21 pm

Re: Employer 401K Losing Out of Matched Money

Post by firebirdparts »

Investing is a long game. It'll be okay. Just remember to do it the other way for the next 29 years and what not.

This is a boring story, but we just got access last year to "mega" 401k, sort of, for all employees. The company will allow me to do 5% of my salary over and above the limit, and so I have to make sure I turn this on January 1, and also I want to make sure that I max out both the regular and catch-up 401k. I can contribute to the 401k any time, but that 5% has to be the steady slog, like your match is.

Well, guess what. Bonuses got paid out in March, and they just messed up and didn't take it. I noticed this, but I figure what can I do? I'm just glad they let me have access even if they don't get it exactly perfect. They caught it later and the person in charge of all my retirement benefits called me on the phone and said they were willing to go back and fix it, with the result that I got a paycheck last week for $0.00.
A fool and your money are soon partners
Topic Author
appleseed88
Posts: 7
Joined: Fri Oct 23, 2020 4:27 pm
Location: Colorado

Re: Employer 401K Losing Out of Matched Money

Post by appleseed88 »

Hi everyone, I asked T. Rowe Price if the plan allows for after-tax contributions, and this is what T. Rowe wrote back. I do not understand the response:
"I have spoken to the conversion analyst and the plan design team.

The SPD and other plan documents were posted a couple of weeks after the conversion, and were mailed to all participants at that time. It is also available on the participant web site at any time.

Mega back door after tax does not work in a 401k plan.
As a safe harbor plan you are not subject to ADP/ACP testing and do not have to make contributions if you are top heavy as long as
You do not make any additional contributions. Adding after tax counts as an additional contribution and you would be subject to ACP testing.
Unlike pre tax after tax contributions count against ACP.

The result would be you would fail ACP and every after tax dollar that went in plus match would be returned.
You would also be subject to ADP so you could fail that test and have to refund that would have been covered by safe harbor. Unfortunately this is not a workaround."
T. Rowe is saying mega backdoor does not work in a 401K plan -- based on everything I've read here, that is not true.

How should I handle a response to this?
MrJedi
Posts: 583
Joined: Wed May 06, 2020 11:42 am

Re: Employer 401K Losing Out of Matched Money

Post by MrJedi »

appleseed88 wrote: Wed Apr 07, 2021 11:59 am Hi everyone, I asked T. Rowe Price if the plan allows for after-tax contributions, and this is what T. Rowe wrote back. I do not understand the response:
"I have spoken to the conversion analyst and the plan design team.

The SPD and other plan documents were posted a couple of weeks after the conversion, and were mailed to all participants at that time. It is also available on the participant web site at any time.

Mega back door after tax does not work in a 401k plan.
As a safe harbor plan you are not subject to ADP/ACP testing and do not have to make contributions if you are top heavy as long as
You do not make any additional contributions. Adding after tax counts as an additional contribution and you would be subject to ACP testing.
Unlike pre tax after tax contributions count against ACP.

The result would be you would fail ACP and every after tax dollar that went in plus match would be returned.
You would also be subject to ADP so you could fail that test and have to refund that would have been covered by safe harbor. Unfortunately this is not a workaround."
T. Rowe is saying mega backdoor does not work in a 401K plan -- based on everything I've read here, that is not true.

How should I handle a response to this?
I do not understand that sentence either, maybe they meant in your specific plan it is not allowed.

The rest is a valid argument. ACP discrimination test is a big reason many plans do not support it or severely limit it.
User avatar
neurosphere
Posts: 4033
Joined: Sun Jan 17, 2010 1:55 pm

Re: Employer 401K Losing Out of Matched Money

Post by neurosphere »

The wording from TRP is so awkward it's hard to know for sure. but I read it as:

-- this plan does not have an after-tax feature, and EVEN IF it did, and you contributed, it would fail compliance testing as things currently stand

OF

-- this plan DOES have an after-tax feature, but if you contribute you'd likely get your contributions returned to you.

However, the phrasing of the email makes me question the source somewhat? :?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
SRenaeP
Posts: 1017
Joined: Tue Jan 19, 2010 9:05 pm

Re: Employer 401K Losing Out of Matched Money

Post by SRenaeP »

appleseed88 wrote: Wed Apr 07, 2021 11:59 am Hi everyone, I asked T. Rowe Price if the plan allows for after-tax contributions, and this is what T. Rowe wrote back. I do not understand the response:
"I have spoken to the conversion analyst and the plan design team.

The SPD and other plan documents were posted a couple of weeks after the conversion, and were mailed to all participants at that time. It is also available on the participant web site at any time.

Mega back door after tax does not work in a 401k plan.
As a safe harbor plan you are not subject to ADP/ACP testing and do not have to make contributions if you are top heavy as long as
You do not make any additional contributions. Adding after tax counts as an additional contribution and you would be subject to ACP testing.
Unlike pre tax after tax contributions count against ACP.

The result would be you would fail ACP and every after tax dollar that went in plus match would be returned.
You would also be subject to ADP so you could fail that test and have to refund that would have been covered by safe harbor. Unfortunately this is not a workaround."
T. Rowe is saying mega backdoor does not work in a 401K plan -- based on everything I've read here, that is not true.

How should I handle a response to this?
Do you have a copy of your SPD now? What does it say in regard to after-tax contributions, in plan conversions and in service withdrawals?
Post Reply