401k Catch Up Contributions

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SurfCityBill
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401k Catch Up Contributions

Post by SurfCityBill » Tue Nov 12, 2019 6:39 pm

Hello Bogleheads, hoping your wisdom can answer an issue I'm having with my company HR dept. I am considered an HCE (highly compensated employee) at the firm I work at for purposes of determining my 401k contribution allowance. Based on whatever test the company does they have determined that I am limited to only contributing 4.5% of my salary to the company 401k plan, which I do.

I am over 50 years of age and would like to make a Catch Up contribution of $6,000 for 2019. It is my understanding that the IRS does not take Catch Up contributions into account for the HCE limit. In other words, I could contribute the 4.5% + $6,000. My HR department disagrees and claims my total contribution can not exceed 4.5% total.

Would you folks be so kind as to confirm and help me in my argument or correct me if I'm wrong?

Thanks,

BL

Spirit Rider
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Re: 401k Catch Up Contributions

Post by Spirit Rider » Tue Nov 12, 2019 7:03 pm

You are 100% correct. I will look for IRS supporting information.

Refer them to 26 code 414v and IRS regulation 26 CFR § 1.414(v)-1 - Catch-up contributions.

Catchup contributions apply in three cases when any of the following is exceedrd:
  • The 402g limit (2019 = $19K).
  • A plan imposed limit.
  • A limit on HCEs caused by ADP test failure.
In fact if you made excess contributions and no catchup contributions, the must reallocate any excess contribution as a catchup contribution.
Last edited by Spirit Rider on Tue Nov 12, 2019 7:20 pm, edited 1 time in total.

Silk McCue
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Re: 401k Catch Up Contributions

Post by Silk McCue » Tue Nov 12, 2019 7:10 pm

Here is a commercial site that says you can.

http://www.401khelpcenter.com/401k_edu ... ctJCcpOmf0

This is an IRS site.

https://www.irs.gov/retirement-plans/40 ... ligibility

Cheers

HomeStretch
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Re: 401k Catch Up Contributions

Post by HomeStretch » Tue Nov 12, 2019 7:17 pm

Even in a small company that is a major administrative blunder by your HR person. If after you provide the IRS support the HR person continues to say it is not allowed, suggest s/he call the third-party administrator who performs the discrimination testing or the 401k provider who can confirm the $6k catch-up is allowed.

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Stinky
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Re: 401k Catch Up Contributions

Post by Stinky » Tue Nov 12, 2019 7:55 pm

Congratulations to you in catching this blunder by your HR team.
It's a GREAT day to be alive - Travis Tritt

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SurfCityBill
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Re: 401k Catch Up Contributions

Post by SurfCityBill » Thu Nov 14, 2019 11:25 am

Thanks for the answers. As usual, you folks have been extremely helpful.

Silk McCue
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Re: 401k Catch Up Contributions

Post by Silk McCue » Thu Nov 14, 2019 11:32 am

SurfCityBill wrote:
Thu Nov 14, 2019 11:25 am
Thanks for the answers. As usual, you folks have been extremely helpful.
Please come back and let us know this goes with your employer.

Cheers

ERISA Stone
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Re: 401k Catch Up Contributions

Post by ERISA Stone » Thu Nov 14, 2019 12:08 pm

While this may be a "blunder", the plan document might still be written so that the OP cannot contribute his full catch-up contribution. It all depends on how it's written in the document.

Spirit Rider
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Re: 401k Catch Up Contributions

Post by Spirit Rider » Thu Nov 14, 2019 4:14 pm

ERISA Stone wrote:
Thu Nov 14, 2019 12:08 pm
While this may be a "blunder", the plan document might still be written so that the OP cannot contribute his full catch-up contribution. It all depends on how it's written in the document.
A 401k plan may but is not required to support catch up contributions.

Unless the OP was unaware or left out the fact that their plan does not support catch up contributions.

I am unaware of any way for a plan to limit the amount of any catch-up contributions.

ERISA Stone
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Re: 401k Catch Up Contributions

Post by ERISA Stone » Fri Nov 15, 2019 12:45 pm

Spirit Rider wrote:
Thu Nov 14, 2019 4:14 pm
ERISA Stone wrote:
Thu Nov 14, 2019 12:08 pm
While this may be a "blunder", the plan document might still be written so that the OP cannot contribute his full catch-up contribution. It all depends on how it's written in the document.
A 401k plan may but is not required to support catch up contributions.

Unless the OP was unaware or left out the fact that their plan does not support catch up contributions.

I am unaware of any way for a plan to limit the amount of any catch-up contributions.
I am aware that a plan can limit contribution amounts in any way it chooses. And I've seen it done. Plan sponsors do not always make decisions that the majority consider rational.

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SurfCityBill
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Re: 401k Catch Up Contributions

Post by SurfCityBill » Mon Nov 18, 2019 2:22 pm

I wanted to let everyone know how this played out with my HR/Finance dept.
I presented my information and requested that Catch Up contributions be made for me during the rest of 2019 so that I could max out this year. Our Controller obviously did not even bother to read the IRS info or anything else I sent her because I was met with a testy response insisting that she knew what she was talking about and I couldn't just instruct her to take out additional money.
Once again, I told her to Read The IRS Code.

As a side note regarding a few later comments in this string I was not aware of any restrictions within our plan limiting Catch-Up contributions and the Controller made no mention of that either. Her denial was based solely on meeting the discrimination test.

About an hour later, I received a somewhat contrite call that she had just had a discussion with our independent CPA (not a Co employee) who advised that I was, indeed, able to make Catch-Up contributions.
Our Controller said that this would show up on a pay stub as a separate deduction from the standard 401k contribution. This wasn't news to me because that's how it always was with other companies I worked for but apparently this was the first time she'd heard that. I guess no one else in my company ever considered a Catch Up contribution.

In conclusion, Bogleheads 1, HR/Finance Dept 0.

Thanks again,
Bill

HomeStretch
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Re: 401k Catch Up Contributions

Post by HomeStretch » Mon Nov 18, 2019 2:27 pm

Glad to hear this was resolved so quickly.

Silk McCue
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Re: 401k Catch Up Contributions

Post by Silk McCue » Mon Nov 18, 2019 2:35 pm

Thanks for the update. Glad you prevailed.

Cheers

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greg24
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Re: 401k Catch Up Contributions

Post by greg24 » Mon Nov 18, 2019 3:00 pm

:sharebeer

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Stinky
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Re: 401k Catch Up Contributions

Post by Stinky » Mon Nov 18, 2019 3:16 pm

Win for the good guys!!
It's a GREAT day to be alive - Travis Tritt

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Re: 401k Catch Up Contributions

Post by Spirit Rider » Mon Nov 18, 2019 6:27 pm

Great to hear.

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ChowYunPhat
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Re: 401k Catch Up Contributions

Post by ChowYunPhat » Mon Nov 18, 2019 6:56 pm

:sharebeer Always great when the advice of the forum wins out. Appreciate you sharing the results SurfCityBill.
A wise man and his money are friends forever...

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