Highly Compensated Employees/Deferred Compensation Plans

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justsomeguy2018
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Highly Compensated Employees/Deferred Compensation Plans

Post by justsomeguy2018 » Tue Dec 04, 2018 8:13 pm

Has anyone ever worked at a place that capped your 401k contribution limits for Highly Compensated Employees?

Or participated in a Deferred Compensation Plan with employer match?

GuySmiley
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by GuySmiley » Tue Dec 04, 2018 8:26 pm

Yes to the first. Annoying process since the limit was determined after the end of the year based on whatever contribution math is used, a "refund" was issued after I filed my taxes and before I had ever heard of this rule, and I had to file an amended return.

epargnant
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by epargnant » Tue Dec 04, 2018 8:28 pm

My husband's work does not cap 401K contributions ahead of time, but last year (our first year maxing it out), his company sent us a refund check in March for around $3000 that will be included as income on this year's taxes. In some ways capping the contributions might be easier in terms of planning, instead of wondering what the surprise refund will be.

We decided to open a taxable account that we think of as "untouchable until retirement" and invested the refund in the Vanguard Total US Market Index (at least we had the minimum for it!). We're planning on putting future refunds in there too, after maxing out Roths & HSA.

Not sure if this is what you were looking for but that's our experience as a "highly compensated employee." The bar is relatively low though, something like 120K per year.

epargnant
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by epargnant » Tue Dec 04, 2018 8:30 pm

GuySmiley wrote:
Tue Dec 04, 2018 8:26 pm
Yes to the first. Annoying process since the limit was determined after the end of the year based on whatever contribution math is used, a "refund" was issued after I filed my taxes and before I had ever heard of this rule, and I had to file an amended return.
We didn't file an amended return when we received a refund. I was under the impression it could be reported as income for the year in which the refund is given. Looks like I need to research it some more.

GuySmiley
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by GuySmiley » Tue Dec 04, 2018 8:57 pm

I should rephrase -- I CHOSE to file an amended return based on my assumption. I don't know if I HAD to or could have done as you suggest.

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Nestegg_User
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Nestegg_User » Tue Dec 04, 2018 9:29 pm

OP

you should easily be able to talk to your HR to determine beforehand whether you are deemed to be a HCE as there are very specific rules that they have to be aware of to remain in compliance with 401k regulations.

https://www.irs.gov/retirement-plans/pl ... efinitions

JBTX
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by JBTX » Tue Dec 04, 2018 9:57 pm

Yes..

bubbadog
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by bubbadog » Tue Dec 04, 2018 10:03 pm

justsomeguy2018 wrote:
Tue Dec 04, 2018 8:13 pm
Has anyone ever worked at a place that capped your 401k contribution limits for Highly Compensated Employees?

Or participated in a Deferred Compensation Plan with employer match?
Yes, but it was much preferred over being in the other employee group.

justsomeguy2018
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by justsomeguy2018 » Tue Dec 04, 2018 10:12 pm

Thanks. I guess I didn't really ask much of a question.

I was wondering if anyone had any advice on what to do about the shortfall in 401k contributions.

Ex. If you make $130k/yr and contributions are capped at 10%, you can only contribute $13k to 401k instead of the $19k contribution limit.

Is all you can do invest the leftover $6k in a taxable account, or is there some other kind of workaround I am unaware of? Assuming you are doing a backdoor Roth and maxing out HSA already and don't qualify for tax-deductible tIRA (hence backdoor Roth-ing)

dallasjava
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by dallasjava » Tue Dec 04, 2018 10:15 pm

My company does not have a safe-harbor 401k plan. I have not seen a company like that in quite a while so I did not think to ask during the interview process. I will in the future. I considered participating in the deferred comp program. I elected not to partipate. My company's plan is limited on the distribution options if you leave plus you cannot roll into an IRA when separate.

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Nestegg_User
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Nestegg_User » Tue Dec 04, 2018 10:47 pm

justsomeguy2018 wrote:
Tue Dec 04, 2018 10:12 pm
Thanks. I guess I didn't really ask much of a question.

I was wondering if anyone had any advice on what to do about the shortfall in 401k contributions.

Ex. If you make $130k/yr and contributions are capped at 10%, you can only contribute $13k to 401k instead of the $19k contribution limit.

Is all you can do invest the leftover $6k in a taxable account, or is there some other kind of workaround I am unaware of? Assuming you are doing a backdoor Roth and maxing out HSA already and don't qualify for tax-deductible tIRA (hence backdoor Roth-ing)
yep, once you’re defined as HCE your limited
{edited}
(spouse’s 401k was limited to 10%)
if you’re highly compensated then the 10% gets to the limit anyway
yes, the lower HCE’s don’t get to put the normal limit into 401k and because they have one then they can’t do a other things that a self-employed individual could. on the other hand, they ARE getting the compensation that puts them into the HCE class.... “so they’ve got that going for them”. https://www.youtube.com/watch?v=pBWcRqPesws
Last edited by Nestegg_User on Thu Dec 06, 2018 12:34 pm, edited 1 time in total.

justsomeguy2018
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by justsomeguy2018 » Tue Dec 04, 2018 10:54 pm

Nestegg_User wrote:
Tue Dec 04, 2018 10:47 pm
justsomeguy2018 wrote:
Tue Dec 04, 2018 10:12 pm
Thanks. I guess I didn't really ask much of a question.

I was wondering if anyone had any advice on what to do about the shortfall in 401k contributions.

Ex. If you make $130k/yr and contributions are capped at 10%, you can only contribute $13k to 401k instead of the $19k contribution limit.

Is all you can do invest the leftover $6k in a taxable account, or is there some other kind of workaround I am unaware of? Assuming you are doing a backdoor Roth and maxing out HSA already and don't qualify for tax-deductible tIRA (hence backdoor Roth-ing)

spouse’s 401k also limited to 10%, but if you’re highly compensated then the 10% gets to the limit anyway
what's this about the spouse's 401k is also limited??

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UpsetRaptor
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by UpsetRaptor » Tue Dec 04, 2018 10:57 pm

Yes.

Deferred compensation plans can vary from great to awful, be sure to do your homework.

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Nestegg_User
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Nestegg_User » Tue Dec 04, 2018 11:56 pm

justsomeguy2018 wrote:
Tue Dec 04, 2018 10:54 pm
Nestegg_User wrote:
Tue Dec 04, 2018 10:47 pm
justsomeguy2018 wrote:
Tue Dec 04, 2018 10:12 pm
Thanks. I guess I didn't really ask much of a question.

I was wondering if anyone had any advice on what to do about the shortfall in 401k contributions.

Ex. If you make $130k/yr and contributions are capped at 10%, you can only contribute $13k to 401k instead of the $19k contribution limit.

Is all you can do invest the leftover $6k in a taxable account, or is there some other kind of workaround I am unaware of? Assuming you are doing a backdoor Roth and maxing out HSA already and don't qualify for tax-deductible tIRA (hence backdoor Roth-ing)

spouse’s 401k also limited to 10%, but if you’re highly compensated then the 10% gets to the limit anyway
what's this about the spouse's 401k is also limited??

taken out of my context..... what I should have said was that spouse was an HCE and limited to 10%. (my 401k wasn’t limited, nor would a spouse on theirs, unless they also were deemed an HCE.

sorry for any confusion

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corn18
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by corn18 » Wed Dec 05, 2018 4:37 am

No to HCE.

Yes to NDCP with match. Ours kicks in when you hit the $275k income limit. Then you can keep contributing to the NDCP with the same match. Seems like a no brainer but I had to read up on withdrawal options. I can do lump sum or up to 20 years after a 6 month wait. I can "invest" in the same funds that are in my 401k. So, as long as the company is solvent, it looks like my 401k. I decided to contribute up to the 5% match to get the free money.

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stickman731
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by stickman731 » Wed Dec 05, 2018 4:54 am

Yes to both.

Our Deferred Compensation Plan was great until the company was acquired - we had numerous low-cost investment options and once you left the company you had 10 years to draw down the monies (hopefully at a lower tax rate).

The new company viewed it is a privilege for selected few and did not mesh with their total rewards program for all employees. About 300 management employees were given lump sum distribution at the maximum tax rate. (OUCH - it hurt). It was one of the dumbest moves ever as about 200 of these highly knowledgeable people left the new company within three years of the acquisition.

Make sure you understand all the details.

Leemiller
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Leemiller » Wed Dec 05, 2018 8:59 am

I’ve always viewed deffered comp as risky because doesn’t it mean you are an unsecured creditor of the company? So if the company goes bankrupt, you can lose it all?

Leemiller
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Leemiller » Wed Dec 05, 2018 9:00 am

stickman731 wrote:
Wed Dec 05, 2018 4:54 am
Yes to both.

Our Deferred Compensation Plan was great until the company was acquired - we had numerous low-cost investment options and once you left the company you had 10 years to draw down the monies (hopefully at a lower tax rate).

The new company viewed it is a privilege for selected few and did not mesh with their total rewards program for all employees. About 300 management employees were given lump sum distribution at the maximum tax rate. (OUCH - it hurt). It was one of the dumbest moves ever as about 200 of these highly knowledgeable people left the new company within three years of the acquisition.

Make sure you understand all the details.
This is crazy. But thank you for posting, I work for a company that is extremely likely to be acquired, and I’ve been trying to learn more about deffered comp plans. Also, it is likely our joint HHI will go down in the next few years due to a planned job move for my husband.

justsomeguy2018
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by justsomeguy2018 » Wed Dec 05, 2018 8:49 pm

Leemiller wrote:
Wed Dec 05, 2018 8:59 am
I’ve always viewed deffered comp as risky because doesn’t it mean you are an unsecured creditor of the company? So if the company goes bankrupt, you can lose it all?
That's correct

justsomeguy2018
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by justsomeguy2018 » Wed Dec 05, 2018 8:51 pm

stickman731 wrote:
Wed Dec 05, 2018 4:54 am
Yes to both.

Our Deferred Compensation Plan was great until the company was acquired - we had numerous low-cost investment options and once you left the company you had 10 years to draw down the monies (hopefully at a lower tax rate).

The new company viewed it is a privilege for selected few and did not mesh with their total rewards program for all employees. About 300 management employees were given lump sum distribution at the maximum tax rate. (OUCH - it hurt). It was one of the dumbest moves ever as about 200 of these highly knowledgeable people left the new company within three years of the acquisition.

Make sure you understand all the details.
This begs the question - assuming you got a 50% company match on the deferred compensation, did you still come out ahead vs. if you hadn't done deferred compensation? The 50% match is what has me intrigued.... but I too worry about the way the distribution options work....

dallasjava
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by dallasjava » Wed Dec 05, 2018 9:02 pm

justsomeguy2018 wrote:
Wed Dec 05, 2018 8:51 pm
This begs the question - assuming you got a 50% company match on the deferred compensation, did you still come out ahead vs. if you hadn't done deferred compensation? The 50% match is what has me intrigued.... but I too worry about the way the distribution options work....
I would personally contribute enough to get the maximum match if I thought the company's finances are solid. If the finances are not solid, then you've got other issues. You are contributing pre-tax money so you are looking to get money distributed back to you that will be taxed at the current rate.

ShowMeTheER
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by ShowMeTheER » Wed Dec 05, 2018 9:36 pm

Leemiller wrote:
Wed Dec 05, 2018 9:00 am
stickman731 wrote:
Wed Dec 05, 2018 4:54 am
Yes to both.

Our Deferred Compensation Plan was great until the company was acquired - we had numerous low-cost investment options and once you left the company you had 10 years to draw down the monies (hopefully at a lower tax rate).

The new company viewed it is a privilege for selected few and did not mesh with their total rewards program for all employees. About 300 management employees were given lump sum distribution at the maximum tax rate. (OUCH - it hurt). It was one of the dumbest moves ever as about 200 of these highly knowledgeable people left the new company within three years of the acquisition.

Make sure you understand all the details.
This is crazy. But thank you for posting, I work for a company that is extremely likely to be acquired, and I’ve been trying to learn more about deffered comp plans. Also, it is likely our joint HHI will go down in the next few years due to a planned job move for my husband.
Just read the Plan Doc. It should discuss what happens in a change in control. Lump sum at that time is not uncommon.

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stickman731
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by stickman731 » Thu Dec 06, 2018 4:58 am

justsomeguy2018 wrote:
Wed Dec 05, 2018 8:51 pm
stickman731 wrote:
Wed Dec 05, 2018 4:54 am
Yes to both.

Our Deferred Compensation Plan was great until the company was acquired - we had numerous low-cost investment options and once you left the company you had 10 years to draw down the monies (hopefully at a lower tax rate).

The new company viewed it is a privilege for selected few and did not mesh with their total rewards program for all employees. About 300 management employees were given lump sum distribution at the maximum tax rate. (OUCH - it hurt). It was one of the dumbest moves ever as about 200 of these highly knowledgeable people left the new company within three years of the acquisition.

Make sure you understand all the details.
This begs the question - assuming you got a 50% company match on the deferred compensation, did you still come out ahead vs. if you hadn't done deferred compensation? The 50% match is what has me intrigued.... but I too worry about the way the distribution options work....
Actually a little above break even - lump sum cause all my income to be taxed at a higher rate :(. I just did not plan right.

ERISA Stone
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by ERISA Stone » Thu Dec 06, 2018 8:25 am

Nestegg_User wrote:
Tue Dec 04, 2018 10:47 pm
justsomeguy2018 wrote:
Tue Dec 04, 2018 10:12 pm
Thanks. I guess I didn't really ask much of a question.

I was wondering if anyone had any advice on what to do about the shortfall in 401k contributions.

Ex. If you make $130k/yr and contributions are capped at 10%, you can only contribute $13k to 401k instead of the $19k contribution limit.

Is all you can do invest the leftover $6k in a taxable account, or is there some other kind of workaround I am unaware of? Assuming you are doing a backdoor Roth and maxing out HSA already and don't qualify for tax-deductible tIRA (hence backdoor Roth-ing)
yep, once you’re defined as HCE your limited
spouse’s 401k also limited to 10%, but if you’re highly compensated then the 10% gets to the limit anyway
yes, the lower HCE’s don’t get to put the normal limit into 401k and because they have one then they can’t do a other things that a self-employed individual could. on the other hand, they ARE getting the compensation that puts them into the HCE class.... “so they’ve got that going for them”. https://www.youtube.com/watch?v=pBWcRqPesws
This reads to me that a spouse's 401k plan would also be limited to 10%. This would be true if you are referring to the SAME 401k plan. Also, family attribution is only related to ownership rules for an HCE, not necessarily HCE status, meaning, if you are an HCE due to owning more than 5% of the company, your spouse is also an HCE. However, if you are an HCE because your compensation was $200k for example (and not a 5% owner), then your spouse wouldn't be an HCE unless he/she also met the HCE compensation limit.

pindevil
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by pindevil » Thu Dec 06, 2018 8:44 am

epargnant wrote:
Tue Dec 04, 2018 8:30 pm
GuySmiley wrote:
Tue Dec 04, 2018 8:26 pm
Yes to the first. Annoying process since the limit was determined after the end of the year based on whatever contribution math is used, a "refund" was issued after I filed my taxes and before I had ever heard of this rule, and I had to file an amended return.
We didn't file an amended return when we received a refund. I was under the impression it could be reported as income for the year in which the refund is given. Looks like I need to research it some more.
We also report the additional income for the year the refund is given.

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Nestegg_User
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by Nestegg_User » Thu Dec 06, 2018 12:40 pm

ERISA Stone wrote:
Thu Dec 06, 2018 8:25 am
This reads to me that a spouse's 401k plan would also be limited to 10%. This would be true if you are referring to the SAME 401k plan. Also, family attribution is only related to ownership rules for an HCE, not necessarily HCE status, meaning, if you are an HCE due to owning more than 5% of the company, your spouse is also an HCE. However, if you are an HCE because your compensation was $200k for example (and not a 5% owner), then your spouse wouldn't be an HCE unless he/she also met the HCE compensation limit.
did you see the later post that noted that was out of context of what I meant? I rephrased to say that unless the spouse was ALSO deemed to be HCE, there would be no limitation.

ERISA Stone
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Re: Highly Compensated Employees/Deferred Compensation Plans

Post by ERISA Stone » Thu Dec 06, 2018 2:09 pm

Nestegg_User wrote:
Thu Dec 06, 2018 12:40 pm
ERISA Stone wrote:
Thu Dec 06, 2018 8:25 am
This reads to me that a spouse's 401k plan would also be limited to 10%. This would be true if you are referring to the SAME 401k plan. Also, family attribution is only related to ownership rules for an HCE, not necessarily HCE status, meaning, if you are an HCE due to owning more than 5% of the company, your spouse is also an HCE. However, if you are an HCE because your compensation was $200k for example (and not a 5% owner), then your spouse wouldn't be an HCE unless he/she also met the HCE compensation limit.
did you see the later post that noted that was out of context of what I meant? I rephrased to say that unless the spouse was ALSO deemed to be HCE, there would be no limitation.
I missed it. Thanks for the clarification.

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