401K Plans

[pskadot]

Hi to All. I'm new here.  

I'm have not reviewed the forum thread to see if this has been address and i hope you don't mind me poising my question / concern.

Facts:

1) My Employer has a sponsored retirement plan - 401K / Roth

2) Any changes to my elections can be made on the Plan Sponsor or thru my employee

3) I been contributing the maximum required wherein my employer with match my contribution (6%/3% employer)

4) The website where I can see all the investment and also where I can make changes provides the opportunity to enroll on another plan. This plan is the Roth Plan

5) I added another plan and elected a 3%

6) I kept my initial plan and did not make any changes.

7) Payroll comes and my employer changed my 401K elected percentage of 6% and changed it to Roth 3%

? I didnt make any changes to my 401K plan nor did I deactivated/suspended my election to contribute.

9) I contacted the Plan administrator and inquired.  She then informs me that my employer only allows one type of plan

10) Informed her that I was not aware of such and that I request documents in Black and White to show such which she is saying

11) I requested also about the employer matching fund and how is that going to be rectified as I did not elect that my initial contribution be stop.

12) Told her that in addition to my current contribution, I elected to contribute to a Roth IRA 401k at 3%

13) Question any issues that you may see regarding this?  What can be done.

14) I reviewed the Annual notice and it provides the following: "You may make either Regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax)."

This does not say that only one plan can be done.  

15) I reviewed the Summary Plan and it is a general disclosure.  

16) Payroll is coming next week and the cut off to make any changes so that it be reflected in the next payroll is today, Friday.  

[ratherbereading]

By "plan" I believe you mean source.  They are not 2 separate plans, it's one plan.   From what you are quoting, "You may make either Regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax)." , it sounds as if you can do one or the other, but not both.  I would clarify with the plan sponsor.

[Kevin C]

If the plan allows Roth, they can't restrict you to only making one type of deferrals, pre-tax or Roth.  One of the requirements for Roth contributions is:
 

Quote

1.401(k)-1(f) Special rules for designated Roth contributions—(1) In general. The term designated Roth contribution means an elective contribution under a qualified cash or deferred arrangement that, to the extent permitted under the plan, is—

(i) Designated irrevocably by the employee at the time of the cash or deferred election as a designated Roth contribution that is being made in lieu of all or a portion of the pre-tax elective contributions the employee is otherwise eligible to make under the plan;

...

I suggest you approach your employer and ask them what you need to do to get your deferral election changed to be 6% pre-tax and 3% Roth.  There are a lot of possible reasons why your first try didn't work.  If they tell you that you can't do both pre-tax and Roth at the same time, they are getting bad advice.

[Belgarath]

Hi Kevin - not sure I agree with that interpretation. I think the phrase "to the extent permitted under the plan" allows an employer to require all deferrals to be one or the other, as long as you are permitted to change. So although nearly all plans permit a split election, I don't think they are REQUIRED to.

[Kevin C]

This came up back when Roth became available.  If you don't believe me, will you believe Sal?  The most recent EOB I have access to is from 2015.  It was in Chapter 11, Section XV, Part A.1.   

[Belgarath]

Hi Kevin - ok, so based on your EOB citation above, this I just pulled out the EOB to take a look - 2018 version. Chapter 11, Section XV, Part A.1, 1.c.1 very clearly states that the plan is not required to divide the election between pre-tax and Roth.

FWIW, I just checked the 2016 EOB, which is the oldest version we have handy, and it is the same as what I cited above.

So I'm still a non-believer at this point. 

Or to perhaps be more precise, the plan isn't required to allow an employee to divide the election between pre-tax and Roth...

[Kevin C]

pskadot,  Sorry, but the discussion is going to get technical.

Belgarath, that is interesting.  Part A. 1  says that procedures are needed "... by which an employee can designate whether his deferrals are pre-tax or Roth, or a combination of both."  That doesn't seem consistent with the later section.

You're making me read more (which is a good thing).  I still think it is a tortured reading of the portion of the reg I highlighted in red to say that a plan can require a Roth election to be all or nothing.  But, let's see where that gets us.  1.401(k)-1(a)(4)(iv)(B) says that  "the right to make each level of elective contributions under a cash or deferred arrangement and the right to make designated Roth contributions are rights or features subject to the requirements of section 401(a)(4)."  Under a plan where you can't make both pre-tax and Roth deferrals at the same time, if I elect to make pre-tax deferrals, I don't have the right to make Roth deferrals. And,  if I elect to make Roth deferrals, I don't have the right to make pre-tax deferrals.  Doesn't that mean the plan needs to test benefits, rights and features for the different types of deferrals?  If I currently have an election in place to make pre-tax deferrals, I can't make Roth deferrals unless I give up the right to make pre-tax deferrals.   You can disregard a requirement to apply for benefits or similar ministerial acts in BRF testing. But, I'm having a hard time seeing having to give up the right to make pre-tax deferrals before Roth deferrals are available being considered similar to not being eligible to make Roth deferrals because you didn't make a deferral election.  

[Belgarath]

On 2/14/2020 at 4:11 PM, Kevin C said:

Belgarath, that is interesting.  Part A. 1  says that procedures are needed "... by which an employee can designate whether his deferrals are pre-tax or Roth, or a combination of both."  That doesn't seem consistent with the later section.

You're making me read more (which is a good thing).  I still think it is a tortured reading of the portion of the reg I highlighted in red to say that a plan can require a Roth election to be all or nothing.  But, let's see where that gets us.  1.401(k)-1(a)(4)(iv)(B) says that  "the right to make each level of elective contributions under a cash or deferred arrangement and the right to make designated Roth contributions are rights or features subject to the requirements of section 401(a)(4)."  Under a plan where you can't make both pre-tax and Roth deferrals at the same time, if I elect to make pre-tax deferrals, I don't have the right to make Roth deferrals. And,  if I elect to make Roth deferrals, I don't have the right to make pre-tax deferrals.  Doesn't that mean the plan needs to test benefits, rights and features for the different types of deferrals?  If I currently have an election in place to make pre-tax deferrals, I can't make Roth deferrals unless I give up the right to make pre-tax deferrals.   You can disregard a requirement to apply for benefits or similar ministerial acts in BRF testing. But, I'm having a hard time seeing having to give up the right to make pre-tax deferrals before Roth deferrals are available being considered similar to not being eligible to make Roth deferrals because you didn't make a deferral election.  

Hi Kevin - I think we'll just agree to disagree on this issue. As far as the EOB goes, I think the sections are perfectly consistent. The plan can offer one or the other, or both. (Just as an aside, this is a purely academic exercise for me, as our plans do allow a split election.) And I don't think it is a tortured reading of the regulation, but of course I could be wrong on that. I'd love to see the actual PLAN language in OP's plan to see what, if anything, it actually says on this. I have a suspicion that the Plan may not specifically address this anyway.

It's too early on a Monday morning for me to delve into the BRF issue - the coffee hasn't kicked in yet! (But I'm very much inclined to not worry about it.)

[Kevin C]

Well, annoying songs aren't the only things that can get stuck in your brain.  It's an academic exercise for me, too.   I've looked at this every way I can think of and keep ending up at the same place. So, we will have to agree to disagree.

[Bird]

(I think) you're not seeing it spelled out in the regs because the Code is obvious; it's the employee's election to do all or a portion of elective deferrals as Roth; see below.  Not that it's relevant; we all know the plan doesn't say what the "Plan administrator" says.  pskadot, I suggest you condense your 16-point list down to "look, I wanna do 6% regular and 3% Roth; how do I get there?"

(b)Qualified Roth contribution program.  For purposes of this section—

(1)In general

The term “qualified Roth contribution program” means a program under which an employee may elect to make designated Roth contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make under the applicable retirement plan.

[pskadot]

Ok...So If I understand right...then I am only required to contribute to one and not both at the same time.  

The only language that I read in the "Annual Notice" which is similar to all other plans as it is "boiler plates" is the language ..."You may make either Regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax). If you make Regular 401(k) deferrals, your deferrals are not subject to income tax until distributed from the Plan. If you make Roth 401(k) deferrals, your deferrals are subject to income tax at the time of deferral. The Roth 401(k) deferrals, however, are not taxed when you receive a distribution from the Plan. In addition, if the distribution of Roth 401(k) deferrals is considered "qualified," then the earnings on the deferrals will not be subject to income tax when distributed from the Plan. Distributions from your Roth accounts will be considered "qualified" only if the distribution is on account of attainment of age 59 1/2, death or disability, and the distribution must not occur prior to the end of the 5-year participation period that begins with the first taxable year for which you made a Roth 401(k) deferral to the Plan, or if earlier, the first taxable year for which you made a Roth 401(k) deferral to another Roth 401(k) plan or Roth 403(b) plan that you rolled over to this Plan. Both types of deferrals are subject to Social Security taxes at the time of deferral. Your Employer will deduct the Social Security taxes, and in the case of Roth 401(k) deferrals will deduct income taxes, from your remaining compensation."

The summary plan is just that, a summary.  

I was trying to contribute to a Roth but when I went into the website to make the changes, I was allowed to have my existing plan "Pre-Tax" and add a Roth plan.  The system accepted it and I got an email confirm the "Additional Plan".  I received my pay statement and noticed that my "Pre-Tax" was removed without my approval and replace with the Roth plan.  an inquiry with my HR informed my that it is a standard practice that when a change is done, it is assumed that  that is what the employee want, yet in this case it was not and there was not a single call to confirm my election.  So I lost the employee match.  

So I wasnt happy with the response as there was not a definite and reassuring answer and thus I requested the following and now I'm waiting for a response. 

Disclosures that must be distributed upon participant request

401(k) plan participants have the right to receive certain plan information upon request – including latest SPD, the latest Form 5500 filing, any collective bargaining agreement that covers the plan, the trust agreement, a contract, or other instruments under which the plan is established or operated.

• A participant must receive this information no later than 30 days after a written request.
• A reasonable fee can be charged to the participant making the request. A reasonable charge would be the lesser of $0.25 per page or the actual cost per page using the least expensive means of acceptable reproduction.

[Bird]

13 hours ago, pskadot said:

Ok...So If I understand right...then I am only required to contribute to one and not both at the same time. 

We're all saying that you are (almost certainly) permitted to contribute to both.  I'm not sure what you mean when you say "required."

All the other words you posted are not relevant.  As I said earlier...

19 hours ago, Bird said:

pskadot, I suggest you condense your 16-point list down to "look, I wanna do 6% regular and 3% Roth; how do I get there?"

If your employer insists that you can do one and not the other, they are almost certainly mis-reading the document.  I have to think it is a matter of figuring out how to put the right things into the system.  You might have lost out on some matching contributions, but not necessarily, if matches are "trued-up" at the end of the year (and the final calcs are not done on a per-payroll basis).  I think they're gonna say that you entered something wrong...if you can eventually figure out how to get what you want you should be able to figure out if you did something wrong or not.

[ratherbereading]

On ‎2‎/‎14‎/‎2020 at 1:55 AM, pskadot said:

"You may make either Regular 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax)."

Still sounds like it's one or the other, not both. EITHER  OR.

[Bri]

Hey, if the plan allows for 401(k) rate changes any time (rather than quarterly), then the move to make is to go in and alternate weeks between Roth and pre-tax.  HR will love you, and the point will have been made.  And, you'll have the amounts split the way you wanted the whole time.

[pskadot]

great point

 

[pskadot]

HR insist that i do one or the other and not BOTH despite being able to input the allocated percentage between both and it allowed it but when it goes to HR for payroll they only do what was update