Deciphering my 401k Annual Report

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Fr3d
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Joined: Wed Sep 14, 2016 12:33 am

Deciphering my 401k Annual Report

Post by Fr3d » Sun Mar 25, 2018 11:58 am

After reviewing my 401k annual report I have a couple questions I'm hoping you all can help me answer. Thanks in advance!

401K Annual Report
Total participants: 26
Value of plan assets: $2,726,000
Yearly expenses: $1,000
Benefits paid to participants: $68,000

Total income of plan: $694,000
Employer contributions: $190,000
Employee contributions: $130,000
Employee rollover contributions: $2,000
Earnings from investments: $372,000

Company Background
My company was founded by 3 partners, who are all now retired. The senior employees bought out the previous partners and now the firm is owned by 4 new partners. I've been at this company for 6 years now and I'm more or less in the middle of the firm's hierarchy system/pay scale, we have 24 employees total.

With 24 employees, the average 401k contribution my employer gave to each staff member is $7,900. I received $3,700 contribution from my employer. This includes 3% of my pay for a safe harbor contribution ($2,100) and a one-time profit sharing contribution ($1,600). I do not receive any employer match on my contributions.

Question
I understand that I'm making some assumptions on my status and my coworker's compensation but does the discrepancy between the average employer contribution ($7,900) and the contribution I received ($3,700) seem odd given my mid-level status? What could explain the large difference?

My Theory
The large discrepancies could be cause by any combination of the following:
1. The 3 previous partners are still receiving 401k profit sharing contributions from the company.
2. The 4 current partners decided to give large profit sharing contributions to certain employees, likely themselves.
3. My employer contribution was below average compared to my coworkers.
4. The highly compensated employees in the firm still received a safe harbor contribution and there is a large discrepancy between the compensation of senior level employees and mid/junior level staff. Can HCE even receive safe harbor contributions?

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FiveK
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Re: Deciphering my 401k Annual Report

Post by FiveK » Sun Mar 25, 2018 2:51 pm

All your theories are plausible.

Yes, HCEs may receive safe harbor contributions. It's not required, but is allowed.

See Safe Harbor 401(k) Plans: Answers To Common Questions for more background.

123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: Deciphering my 401k Annual Report

Post by 123 » Sun Mar 25, 2018 3:26 pm

You should be able to get a complete copy of the current COMPLETE 401k plan from your employer. (You don't want to bother with that "Summary Description" nonsense, the juicy parts are in the complete plan.) I've gotten them for most of the plans I've participated in. From my experience it's usually best to just request a copy in writing (by certified mail) from the company president or HR department. A verbal request is often met with questions of "Why", or ""What are you interested in?". A written request has to acted upon.

You will find the plan document very interesting. You may find that certain things are dependent on particular formula or you may shocked to find out how broad "management discretion" is allowed. It also get interesting if there have been plan amendments along the way, you may be able to tie those to particular incidents in the history of your organization.

You may be the only plan participant who has ever read the complete plan. For smaller plans most of the time people just "wing it", who will ever question what they did?
The closest helping hand is at the end of your own arm.

gostars
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Joined: Mon Oct 09, 2017 7:53 pm

Re: Deciphering my 401k Annual Report

Post by gostars » Sun Mar 25, 2018 7:31 pm

As I understand it, profit sharing is usually divided based on employee salary. As a simple example, if the company has $5 million in payroll, and each partner gets $500k and the other 20 of you split the remaining $3mm. If there's $100k in profit sharing, then each of the partners gets $10k and the rest of you split the remaining $60k. If you calculate based on the mean, you end up below, because the big 4 are making well above the mean and everyone else is below. Median might be a more useful number here.

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tfb
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Re: Deciphering my 401k Annual Report

Post by tfb » Sun Mar 25, 2018 7:38 pm

If the buyout happened during the year in question, the 3 previous partners still worked and should've received profit sharing. If all partners are older on average, the employer may have chosen an allocation method that benefited the partners disproportionately. It doesn't necessarily reflect your status among the staff employees.
Harry Sit, taking a break from the forums.

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Cosmo
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Re: Deciphering my 401k Annual Report

Post by Cosmo » Sun Mar 25, 2018 7:44 pm

Is this a profit sharing plan or a 401(k)? I'm confused here.

Cosmo

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