401kquestion

Thanks to everybody for the feedback. The main reasons why we won't move to a Safe Harbor plan is that only two employees are currently affected by failing the ADP Test (me and the CEO) and our advisor (he's basically like our CFO) doesn't see it as a priority since our owner is in his 70s (I'm in my early 40s). Thus, I don't see this changing any time soon. I am maxing out on individual IRA's each year for my wife and I. Could convert to Roth's but wondering if it would make sense? I've read about variable annuities I could self fund to get some tax advantaged status (Vanguard has very low cost ones) or I could just continue contributing to after tax index fund accounts as I have been doing. Any other thoughts?

I am one of two HCE's in a 50 person company (the other HCE is our owner). I work in business development and have made a lot of money over the last several years. However, our owner, and his outside financial advisor (who he defers to on matters like this) simply will not Safe Harbor our 401K plan. The problem is that most non HCE's don't contribute. For the last four years, we have failed the ADP test and I've gotten considerable refunds at the end of the year (both from what I have contributed and what my employer's matching contribution). I was just told by my owner's financial advisor that since we failed the ADP test again this year, I will be capped at contributing $10,000 this year (instead of the max of $18,000) and the employer match will be capped at $9,000. My owner's refusal to safe harbor my plan is annoying and I'm at the point where I am considering working for an employer where I won't have this issue. I do very well there (I've made between $300-$400K over the past few years) and wouldn't make as much elsewhere, so wanted to get outside advice on what else I should do here? I max out both my individual IRA and my wife's IRA ($5,500 each year) and I also contribute healthily to taxable mutual fund and stock accounts (and also to a muni bond fund as well).

Thank you for the response. In my Retirement Account online, I have both "source balance" and "vested balance" listed. The source balance and vested balance amount are exactly the same for employer matching, as they are also the same for rollover and employee pre tax. I have been told by our plan's administrator that it essentially doesn't matter if the employer matching from last year is showing as "vested balanced" because since the ACP Test was failed, this additional $8,300 should never have been matched in the first place and is going into the forfeiture account. My owner believes the same. I am getting a check for what I overinvested last year, plus gains, but the plan administrator is asking me to sign a document that also includes me sending back $10,200 for a failed ACP test/excessive contribution on the employer matching that is going into the forfeiture account. I did look on my plan highlights page and it says regarding employer matching for vesting the following: Employer Match Contributions: 1 year of service 0% 2 years of service 20% 3 years of service 40% 4 years of service 60% 5 years of service 80% 6 years of service 100% I've been with this company for 12 years. Does the above mean that the employer match doesn't vest for a specific year (like 2013) until 2015 (which would then only be at 20%)? Or since I've been with the company a dozen years am I automatically vested 100%? Any additional insight into this type of situation and how I should handle it would be greatly appreciated.

My employer failed their ADP/ACP Test for 2013 in our 401K plan. I have been after our owner to Safe Harbor the plan for the past few years, as I've gotten money back each of the last few years due to failed ADP tests, but he doesn't want to put the extra money into the plan to Safe Harbor it. As a result, the past few years I've gotten a check back for excess contributions. The owner and I are the only HCE's in the organization currently. Most of our organization doesn't contribute at all to our plan (we have about 50 employees total) and those who do invest a small amount. My employer ended up matching over $10,000 to my 401K last year but because the ACP test was failed, I'm being told by our plan administrator that more than $8,000 of the matching (and $1,900 in gains) are in excess of the average contribution and are being put in a forfeiture account, which my owner will use to fund the 401K plan for this year (fees and funds). Our plan administrator's response is that this money never should have been put into my account since we failed the ACP Test. I am essentially having more than $10,000 taken out of my 401K with nothing to show for it. Should I accept the logic our my plan administrator? He's trying to tell me that most companies he deals with have ADP/ACP issues and that HCE's are always having this same problem, yet a good friend of mine who runs a similarly sized business (50 employees) told me that he simply just Safe Harbors his plan to avoid upsetting employees. The plan administrator's response is that I should just do something like an annuity since we're always going to have this 401K issue (feels like he's just trying to sell me something). I talked to my boss again about my concerns and he doesn't plan on Safe Harboring the plan any time soon. I'm having to cut my 401K contribution to about 4% now so we don't fail the ADP/ACP test again next year, so instead of maxing out at $17,500 each year, my contribution will have to be much less. I already max out on IRA's for my wife and myself and also have taxable accounts for stocks and mutual funds, but am wondering at what point I need to look for a company who doesn't have these ongoing issues. Would appreciate any insight from others who run into this issue or who understand it from a planning point of view.