IRA & 401K Contributions

[Guest rachd]

I rarely deal with IRA's so I don't know a lot about them.... however, question has been asked from a smaller employer (w/terrible employee deferral average) as to how they can increase their (HCE) contributions for retirement. They are thinking an IRA (maybe a Roth?) but I cannot figure out what their limits would be for contributions. Obviously, for their 401K, they must pass the ADP/ACP test. They are not interested in changing their plan design (i.e. Safe Harbor).

Can anyone help me with the max contributions they could do for an IRA?

Thanks,

Rachel

[WDIK]

They are not interested in changing their plan design (i.e. Safe Harbor).

What is their current plan design?

[Guest rachd]

It's a regular 401K- they have poor employee participation (even with a matching contribution) so they are VERY restricted as to what they can contribute.

[WDIK]

I know that this isn't answering your original question, but I am curious as to why they are opposed to a safe harbor plan. If the plan already provides a match and participation is still poor, what additional exposure does the employer expect? It sounds like a perfect situation for a plan with a safe harbor match.

[RCK]

This may not be a perfect situation for a Safe Harbor design if the existing design is lean--say a match of 20% of the first 5% with a 5 year graded vesting schedule.

If that is the case, the move to safe harbor matching, and safe harbor vesting can be breath-takingly expensive.

The lesser cost approach is to increase NHCE participation in the current design by adding loans and hardships (if they are not already features), and then communicating the benefits of 401(k) participation. Relentless communication can be as effective in increasing participation as improved plan design.

I'm also a big believer in automatic enrollment (it's worked for us), but that does carry some philosophical issues.

RCK

[WDIK]

This may not be a perfect situation for a Safe Harbor design if the existing design is lean--say a match of 20% of the first 5% with a 5 year graded vesting schedule.

Point well taken. I should have considered that the match might be very minimal, since the employer apparently is only interested in increasing benefits for HCE.