401K

[Guest YouKnow]

....................thanks all for your feedback!

[ETA Consulting LLC]

Sure they can, as long as they pass the non-discrimination tests each year. Without going into tons of detail, there are rules, tests, reporting requirements, and other responsibilities that must be adhered to when sponsoring a qualified plan. Nothing is arbitrary.

Good Luck!

[Guest YouKnow]

But there are superiors in that same department that the company contribute to their 401K? Why they don't contribute to the rest of the department is beyond me?

[ETA Consulting LLC]

You make an interesting observation. We know that there are objective tests that must be performed annually in order for the plan to continue to meet the conditions for favorable tax-treatment. This is not to say the employer is aware of these requirements and operating their plan accordingly. Observations such as yours tend to show there "MAY" be some impropriety there.

[GMK]

I agree with ERISAtoolkit.

If the nondiscrimination tests show that highly compensated employees (HCE's) and Key employees are getting too much benefit compared to non-HCE's and non-Keys, then the plan has to make corrections, for example, sometimes by making additional contributions to non-HCE's. It depends on the details of who's getting what.

And a useful reference if you're not familiar with all the terms like HCE, Key, nondiscrimination, etc. is:

http://www.retirementdictionary.com/

[K2retire]

For more specifics about your plan, ask for a copy of the Summary Plan Description. It will explain who is entitled to what.

[Bill Presson]

But there are superiors in that same department that the company contribute to their 401K? Why they don't contribute to the rest of the department is beyond me?

Obviously, we know very little about the business or plan design in your situation, but making contributions for some employees and not others can be perfectly legal and a very attractive option.

In the past, we've installed plans for fast food franchises that would do this extensively. We excluded all highly compensated employees and anyone that wasn't an assistant manager or manager (as long as they weren't also an HCE). We would then have a plan covering 40-70 people and the business could contribute as much or as little as they wanted.

This kind of plan works really well when the owners aren't looking to benefit from the plan.

So, it can be done. Should it be done is another question because there can be some political fallout.

[Guest YouKnow]

But there are superiors in that same department that the company contribute to their 401K? Why they don't contribute to the rest of the department is beyond me?

Obviously, we know very little about the business or plan design in your situation, but making contributions for some employees and not others can be perfectly legal and a very attractive option.

In the past, we've installed plans for fast food franchises that would do this extensively. We excluded all highly compensated employees and anyone that wasn't an assistant manager or manager (as long as they weren't also an HCE). We would then have a plan covering 40-70 people and the business could contribute as much or as little as they wanted.

This kind of plan works really well when the owners aren't looking to benefit from the plan.

So, it can be done. Should it be done is another question because there can be some political fallout.

In this case, we see HCE, non-HCE, management and non-management getting contributions, just one particular department is not getting contributions.

[12AX7]

I would suggest getting a copy of the current Plan Document. You are entitled to receive a copy of this document under ERISA law. Althought the SPD should reveal this type of information, I've seen many examples that are woefully inadequate in disclosing which participants are entitled to certain benefits.

If you are unsure as to how the Plan Document language translates into benefits for certain groups of participants, then ask your employer, or perhaps they will allow you to speak with their plan consultant.

We cannot interpret your plan or determine how it should operate within the contexts of your postings, but you have received answers to your questions. It is possible to exclude certain groups of participants from benefits in the plan and be "legal" within the guidelines of all the regulations. It may not seem fair, but it is entirely possible to operate a plan this way.

I hope you find this information helpful. Feel free to ask us questions, and we will try to help you understand this concept in general terms.