401k CatchUp

[Guest Dean1]

I work for GE and to my horror, found in my first pay period that for some reason, I was not "re-upped' for my now $5500 Catch-Up contribution. I still don't know how this happened, suffice to say I will make my elections in writing in future years.

Letters to my plan administrators go unanswered. Is there an alternative means for me to take advantage of this $5500 pretax advantage? Any suggestions would be appreciated.

[QDROphile]

The way you have written the post, you have no problem. Try rewrting with some time frames. Otherwise, you still have plenty of time in the year to acheive the maixmum contribution assuming you remain employer the remainder of the year.

[GMK]

Your plan probably continued your previous deferral election amount or percentage, because you didn't tell them (in writing) to change it. That's probably how it happened, but the Plan Administrator is the one who should respond with the explanation.

Assuming you can change your deferral election more frequently than once a year, all you should have to do (as QDROfile says) is file a new deferral election at the next opportunity, increasing your deferrals to a level that over the remainder of the year makes up for the currently lower deferral amounts.

[Guest Dean1]

Your plan probably continued your previous deferral election amount or percentage, because you didn't tell them (in writing) to change it. That's probably how it happened, but the Plan Administrator is the one who should respond with the explanation.

Assuming you can change your deferral election more frequently than once a year, all you should have to do (as QDROfile says) is file a new deferral election at the next opportunity, increasing your deferrals to a level that over the remainder of the year makes up for the currently lower deferral amounts.

I have done the Catch Up for about 3 yrs (since I became eligible at 49) plus my usual max 10% pretax. For reasons I don't understand, all of our elections carry over from year to year with the exception of the Catch Up option. There is a designated, annual enrollment period in Oct-Nov. every year. I was careful to re-up in this period on the benefits website, but something, somewhere, went awry and I was shocked to see no deduction in my first pay period.

I sent the administrator an express letter the next day requesting that I be allowed to make contribution ins and got no response.

I should have mentioned that the savings plan reps at the telephone center have stated that unless there is an oversight on their part, the employee doesn't get a second shot at doing the catchup for that particular year. This tells me that if so inclined, they could allow me to do the catch up contributions.

I am told these folks are not the actual people who would be in a position to make such decisions. They suggested that I write the administrators and request the consideration.

I was hoping there might be some means of taking the tax advantage beyond the administered plan since they don't seem compelled to even answer my correspondence. I have also called the IRS and they are telling me that they will have to research this and get back to me. I may be out of luck for 2009 but it's sure worth asking.

Thanks very much for everyone's input.

[QDROphile]

A 401(k) plan with an annual deferral election really sucks, but that is consistent with an apparent 10% deferral maximum(unless you are an HCE). One would think that GE is either smarter or more accommodating than than that.

[Guest Dean1]

A 401(k) plan with an annual deferral election really sucks, but that is consistent with an apparent 10% deferral maximum(unless you are an HCE). One would think that GE is either smarter or more accommodating than than that.

Yes I am a HCE, but I'd just as soon not be, given the limitations that result regarding my retirement savings and even my Roth which can't be funded for 2008.

I look forward to not being an HCE for 2009 as funny as that sounds. And maybe by working less, I can save another person from being laid off.

If I learn anything interesting on this issue, I will post it here. Can't wait to hear the IRS take on this!

Thanks Again

[WDIK]

Yes I am a HCE, but I'd just as soon not be

Now I don't know if I can take any of your posts seriously.

[K2retire]

One could wish to not be an HCE without wishing for less compensation -- it is only a wish for a change in rules.

[Guest Dean1]

One could wish to not be an HCE without wishing for less compensation -- it is only a wish for a change in rules.

That statement probably was a bit provocative, so I'll give you the details behind my rationale. It is overtime that puts me into the HCE range. Were I to work less OT, and not be an HCE, I would be able to do 15% pretax instead of 10%, which would give me a huge income tax reduction. I would also be able to fund my roth which was not allowed fhis year. Coupled with 50+ catchup and your saving pretty good.

My financial ambitions are pretty much to save for retirement. No quest for cars, boats etc. so I will do well to earn less and enjoy more weekends. I don't even want to think about how little I was paid for all of that OT after you adjust for taxes.

I think K2retire makes an even better point though...And more simply put!

[MWeddell]

It strikes me as highly unlikely that a company the size of GE will not allow you to change your catch-up contribution election other than annually. Typically one can change contribution elections at any time.

[WDIK]

My financial ambitions are pretty much to save for retirement.

I think a quick analysis can show that if you take the difference between the highly compensated salary and the non-highly compensated salary and place it in savings, you will generally end up having more disposable income at retirement by staying at the higher wage, even adjusting for the pre-tax/post-tax factor.

[Guest Dean1]

My financial ambitions are pretty much to save for retirement.

I think a quick analysis can show that if you take the difference between the highly compensated salary and the non-highly compensated salary and place it in savings, you will generally end up having more disposable income at retirement by staying at the higher wage, even adjusting for the pre-tax/post-tax factor.

I dunno, maybe but if I am not an HCE, I can do 15% (I think) pretax as opposed to 10%, plus the catchup and have my weekends. I worked an ungodly number of weekends. I won't do that again.

As for my original question of whether there might be another way to take advantage of the pretax $5500 catchup option when your plan administrator disqualifies you for that year, the short answer is no. I had posed the question to IRS 401K specialists last week and received a call from them Saturday morning. They hold the view that the 5500 AGI tax advantage exists only within the concept of a 401K so outside of any given plan, it does not exist. Unlike, for instance, the flex spending accts, where one can do the pretax through their benefits scheme or deduct at tax filing. He suggested I maybe try one last time to appeal to my plan administrators and that's about it.

He also went on to tell me about SEP's (Simplified Employee Pension) in the event I have a small business, as an alternative means of socking money away. I had never heard of them before.

[WDIK]

I dunno, maybe

BasicAnalysis.pdf

[Guest Dean1]

I dunno, maybe

Thank you for that analysis. I sure hope I get better than 3% return though in real life. The difference between the NHCE limit and my 2008 total was much greater, so even more to your point. I didn't understand the Net 401K after 10% tax though. Isn't that gonna be taxed at something higher based on my total income at distribution? But I do get it more after all.

[WDIK]

The rate of return and tax rate were merely conservative assumptions for purposes of the illustration. I also hope that your rate or return is better than in the illustration. It is also possible that you will be in a higher tax bracket. In either case, the differential increases even more in favor of the higher salary.

[Guest Dean1]

It strikes me as highly unlikely that a company the size of GE will not allow you to change your catch-up contribution election other than annually. Typically one can change contribution elections at any time.

I have been with GE for 22 yrs and as long as I can remember that is the way GE Corporate does it. Every year we have what is called "open enrollment", mid Oct. to mid Nov. We must make our choices then for the coming year regarding benefits choices such as flex health accounts, type of health plan (PPO,HMO etc)

additional life or other types of insurance, extra vision or dental, voluntary pension (supplement to the regular pension), long term disability etc. After the cutoff date, you are committed for the year, with the exception of maybe canceling something like LTD.

Our many available 401K investment choices such as can be switched and adjusted in terms of funds and stocks and percentages etc. online anytime during the year and our choices carry over from year to year. Not so for the 50 plus catchup. They even carry over our choice for the extra $1800 contribution to our pension which makes the catchup limitation even more puzzling. We have a lot of flexibility as far as S&SP (401K) investment switches otherwise.

Hearing from you all that this limitation is not common practice makes me want to find out their reasoning behind it.