# 401K Deferral Question



## JimW (Nov 9, 2017)

Hi All, 

My wife's employer caps her 401K deferrals at 15% of her salary. She  gives the 15% max but it isn’t enough to reach the $18,000 max for  annual deferrals. She is over 50 but also not allowed to make “catch up  contributions” due to the fact that she hasn’t reached the $18,000  limit. She wants to put more money into her 401K but cannot do so due to  these restrictions. It seems these restrictions are extremely unfair to  those employees who cannot max out the $18,000 deferral limit with a  strict 15% cap on deferrals. Are these restrictions allowed by law?  Shouldn’t she be able to contribute more? It seems completely unfair to  restrict her deferrals in this manner.


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## mathjak107 (Nov 11, 2017)

JimW said:


> Hi All,
> 
> My wife's employer caps her 401K deferrals at 15% of her salary. She  gives the 15% max but it isn’t enough to reach the $18,000 max for  annual deferrals. She is over 50 but also not allowed to make “catch up  contributions” due to the fact that she hasn’t reached the $18,000  limit. She wants to put more money into her 401K but cannot do so due to  these restrictions. It seems these restrictions are extremely unfair to  those employees who cannot max out the $18,000 deferral limit with a  strict 15% cap on deferrals. Are these restrictions allowed by law?  Shouldn’t she be able to contribute more? It seems completely unfair to  restrict her deferrals in this manner.


yes , there is a formula that is used so it keeps the plan from being top heavy  salary wise.

don't go by dollar figures , i don't know if they changed 


*What is a Top Heavy Plan?*

A defined contribution plan is considered top heavy when more than 60% of the account balances are attributable to “key employees.” A key employee is an employee who meets any of the following criteria during the determination year:


Owns more than 5% of the employer;
Owns more than 1% of the employer and had compensation in excess of $150,000; or
Is an officer of the employer with compensation in excess of a specified dollar amount ($165,000 for 2012), with certain limits on the maximum number in this category.

https://markleyactuarial.com/top-heavy-impact-on-401k-plans/


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## JimW (Nov 14, 2017)

Quick update: 

   	My wife has taken this to the company HR dept (along with a copy of the  plan summary that shows that catch up contributions are allowed in  their plan), who in turn has taken it to the 401K plan administrator.  The 401K plan admin has realized (thanks to our efforts), that there is a  deficit in the way the plan is being implemented. He did mention  perhaps raising the 15% percent limit so all employees would be able to  reach the 18K annual max or simply allowing the 6K in catch up  contributions as remedies. As of this posting nothing has been done but  hopefully we will hear something soon.  
   	The woman in HR did mention to my wife that no one has ever questioned  the current plan or wanted to make catch up contributions in the past,  which we found hard to believe. At least the ball appears to be rolling  in our favor.


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## JimW (Nov 14, 2017)

mathjak107 said:


> yes , there is a formula that is used so it keeps the plan from being top heavy  salary wise.
> 
> don't go by dollar figures , i don't know if they changed
> 
> ...



Thanks for the reply mathjak. Unfortunately my wife is not considered a Highly Compensated Employee in her company, so these restrictions do not apply to her. The problem is the way the company is currently implementing the 401K plan is discriminatory tor the regular employees of the company because they cannot reach the 18K max deferral with a 15% cap on deferrals. Therefore they are also technically not eligible for catch up contributions. It appears that the 401K admin in her company is now aware of the problem and hopefully a remedy will be put in place soon. You can read my update in the post above.


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