401(k) Misadventures

[owlegrad]

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So for most or maybe all of 2020 my employer hasn't been matching 401k contributions, ostensibly due to the loss of business from COVID. Well I recently learned that in addition to that they are expecting to fail the nondiscriminatory test. Truly our buyout has been the gift that keeps on giving (previously we were a safe harbor plan). So I am now expecting to get back half my contributions for the year (I contributed 6% and apparently anything above 3% has to be returned to correct the failure).

Anyone ever been through this and/or have any tips for someone about to go through it?

 

[lord999]

That's super dumb, all your company had to do is do the IRS safe harbor match. This is going to cost the company more and they'll have to remediate. Walgreens had that happen in the mid-00s to their legacy staff.

1. Your refund is taxable, however, I hope your company goes the non-elective contribution and let's you keep money there. You also cannot contribute until the plan stabilizes.
2. You need to keep how much you lost in taxes, because that's going to be part of the inevitable clawback compensation.

 

[owlegrad]

That's super dumb, all your company had to do is do the IRS safe harbor match. This is going to cost the company more and they'll have to remediate.

I am told they have failed the previous four years so obviously they aren't that concerned about it.

 

[lord999]

I am told they have failed the previous four years so obviously they aren't that concerned about it.

The CFO must be a real great chum, because no, it's much more expensive to pay the retrospective tax penalty because it's assessed on all employees and more for noncontributors who are the ones discriminated against. I'm surprised if it's been 4 years that SEC doesn't get involved as an ERISA issue.

 

[mustang sally]

Wow, I didn't know this could happen with a 401k. That sucks.

A similar thing happened to me with our flex spend plan. My company failed the non-discrimination testing somehow after they had already given us our W2s for the year. I had already filed my taxes, so not only did I have to amend my taxes but I ended up having to pay whatever taxes I then owed. I was so annoyed.

 

[owlegrad]

Wow, I didn't know this could happen with a 401k. That sucks.

A similar thing happened to me with our flex spend plan. My company failed the non-discrimination testing somehow after they had already given us our W2s for the year. I had already filed my taxes, so not only did I have to amend my taxes but I ended up having to pay whatever taxes I then owed. I was so annoyed.

I didn’t know THAT could happen, that also sucks!

 

[pezdispenser]

Came here expecting a harrowing story of how you took a loan on your 401k to invest in penny stocks, that subsequently went bust so you lost it all, then got laid off so you have to pay it back, but you don't have the money of course, so it's going to be a taxable and penalized early withdrawal, and you don't have the money to pay that either. You disappoint me Owle.

Ok seriously, they'll return your contributions to you, and you'll have to pay taxes on it. It sounds like they won't fix their 401k plan, so try to stay under the contribution limit in the future so you won't have this hassle.

 

[owlegrad]

Came here expecting a harrowing story of how you took a loan on your 401k to invest in penny stocks, that subsequently went bust so you lost it all, then got laid off so you have to pay it back, but you don't have the money of course, so it's going to be a taxable and penalized early withdrawal, and you don't have the money to pay that either. You disappoint me Owle.

Ok seriously, they'll return your contributions to you, and you'll have to pay taxes on it. It sounds like they won't fix their 401k plan, so try to stay under the contribution limit in the future so you won't have this hassle.

Omg that would have been an amazing story to share. No, I haven’t thrown all caution to the wind when it comes to “investing”.

I wonder what I should spend my windfall on?

 

[mentos]

Omg that would have been an amazing story to share. No, I haven’t thrown all caution to the wind when it comes to “investing”.

I wonder what I should spend my windfall on?

FRSX, NNDM, FCEL easy money 🤣

 

[StockPharmD2020]

I don't eveb know what the non diacrematory test is

 

[lord999]

Omg that would have been an amazing story to share. No, I haven’t thrown all caution to the wind when it comes to “investing”.

I wonder what I should spend my windfall on?

A good Cubano ham would be a nice start if there's a supplier in your area.

 

[JustFillIt]

What is the non-discriminatory test?

 

[pezdispenser]

Omg that would have been an amazing story to share. No, I haven’t thrown all caution to the wind when it comes to “investing”.

I wonder what I should spend my windfall on?

Hookers and blow of course. Or if you haven't already, and if you're eligible, put it in a HSA that allows you to invest, or a backdoor Roth IRA, or just a plain old taxable investment account.

 

[JustFillIt]

Hookers and blow of course. Or if you haven't already, and if you're eligible, put it in a HSA that allows you to invest, or a backdoor Roth IRA, or just a plain old taxable investment account.

If the common man with no connections was inclined to just go buy a bunch of hookers and blow - where would you look?

I would assume somewhere in Las Vegas

 

[pezdispenser]

If the common man with no connections was inclined to just go buy a bunch of hookers and blow - where would you look?

I would assume somewhere in Las Vegas

You forgot to say "asking for a friend". 😛 I don't know because I'm not into that sort of stuff, but there's probably a lot of that happening in Miami Beach as well as Vegas.

 

[owlegrad]

What is the non-discriminatory test?

Honestly it’s pretty technical and google can explain it better. The bottom line is that not enough non-highly compensated individuals contributed to the plan throughout the year. It has nothing to do with race.

Hookers and blow of course. Or if you haven't already, and if you're eligible, put it in a HSA that allows you to invest, or a backdoor Roth IRA, or just a plain old taxable investment account.

Ding ding ding! Hookers and blow was the answer I was looking for!

 

[JustFillIt]

You forgot to say "asking for a friend". 😛 I don't know because I'm not into that sort of stuff, but there's probably a lot of that happening in Miami Beach as well as Vegas.

Haha! I’m just joking - but it just got me thinking...

 

[confettiflyer]

Dang, that sucks. I’ve never had it happen to a 401k, but I once had a cafeteria plan revised due to failure of the non-discrimination test. They caught it early and revised contributions going forward.

Slightly off topic, I pulled $100k out of my retirement account under the CARES provisions (I wanted it at a better investment house)...deeply debating some high risk moves with it before repaying it come April. Someone talk me off this ledge rofl.

 

[JustFillIt]

Dang, that sucks. I’ve never had it happen to a 401k, but I once had a cafeteria plan revised due to failure of the non-discrimination test. They caught it early and revised contributions going forward.

Slightly off topic, I pulled $100k out of my retirement account under the CARES provisions (I wanted it at a better investment house)...deeply debating some high risk moves with it before repaying it come April. Someone talk me off this ledge rofl.

What do you want to buy and with what strategy?

 

[mentos]

Slightly off topic, I pulled $100k out of my retirement account under the CARES provisions (I wanted it at a better investment house)...deeply debating some high risk moves with it before repaying it come April. Someone talk me off this ledge rofl.

Did someone say high risk? I'm your guy!

Put 25k each into GEVO, CETX, IDEX and OPTT. Your 100k will become 300k+ easily. 1mil potential for real.

 

[StockPharmD2020]

Dang, that sucks. I’ve never had it happen to a 401k, but I once had a cafeteria plan revised due to failure of the non-discrimination test. They caught it early and revised contributions going forward.

Slightly off topic, I pulled $100k out of my retirement account under the CARES provisions (I wanted it at a better investment house)...deeply debating some high risk moves with it before repaying it come April. Someone talk me off this ledge rofl.

Don't eff with your retirement account. Just index it.

 

[mustang sally]

Honestly it’s pretty technical and google can explain it better. The bottom line is that not enough non-highly compensated individuals contributed to the plan throughout the year. It has nothing to do with race.

Which I also think sucks. Obviously companies offer the benefits to everyone (at least everyone who qualifies). How is it anyone's fault if not enough people in "x" income bracket do not contribute to something? The whole non-discrimination thing makes no sense to me. I'm sure some company somewhere discriminated against someone and now we all get penalized for it.

 

[Sine Cura]

Hard to imagine wanting to work for a company whose 401(k) isn't a safe harbor plan.

The 401(k) is really a public policy "failure" (unless your public policy vision involves making people work literally until their death) though even though more well compensated individuals certainly benefit

Father of modern 401(k) says it fails many Americans

Ted Benna was a pension consultant who noticed a new tax code provision, K, added to Section 401. He never intended the retirement plan that resulted to replace pensions or become so complicated.

www.marketplace.org

 

[owlegrad]

Hard to imagine wanting to work for a company whose 401(k) isn't a safe harbor plan.

It isn’t a matter of want. 😉

 

[mentos]

Did someone say high risk? I'm your guy!

Put 25k each into GEVO, CETX, IDEX and OPTT. Your 100k will become 300k+ easily. 1mil potential for real.

1 month later, that 100k would have been 200k by now with plenty of upside to come.

 

[confettiflyer]

1 month later, that 100k would have been 200k by now with plenty of upside to come.

Lol couldn’t do it, moved it back to vanguard and am averaging $10k/week into total market and a small cap fund 85/15.

Kudos to your rip, though!

 

[mgarph]

When are we getting that chunk of change back @owlegrad ? They said March but haven’t gotten my contributions back yet. At least we are getting 750 match after the fact. Bizzaroworld after this last merger...

 

[owlegrad]

When are we getting that chunk of change back @owlegrad ? They said March but haven’t gotten my contributions back yet. At least we are getting 750 match after the fact. Bizzaroworld after this last merger...

Yeah what a crazy reversal. 100% of 4% is MORE than 50% of 6%, right? But then it is capped at $750. And still no word on when they are going to re-activate the normal match (fwiw I never heard that they were going to re-activate in March although obviously I would love that).

Interestingly enough we had more than one person who lowered their contribution to 3% in order to avoid the non-discriminatory test failing penalty. So they missed out on 1% of the match. It’s hard to be too upset about the company going back and giving us free money that they never let on to but it still sucks to change the rules after the fact and penalize people for making the best choice they could with the facts they had at the time. Like stop dicking around and just give us our match back please.

Still a free $750? Alright. Please sir, may I have another?

 

[grizzlesgrizzlies]

Yeah what a crazy reversal. 100% of 4% is MORE than 50% of 6%, right? But then it is capped at $750. And still no word on when they are going to re-activate the normal match (fwiw I never heard that they were going to re-activate in March although obviously I would love that).

Interestingly enough we had more than one person who lowered their contribution to 3% in order to avoid the non-discriminatory test failing penalty. So they missed out on 1% of the match. It’s hard to be too upset about the company going back and giving us free money that they never let on to but it still sucks to change the rules after the fact and penalize people for making the best choice they could with the facts they had at the time. Like stop dicking around and just give us our match back please.

Still a free $750? Alright. Please sir, may I have another?

Just got the email this morning. I maxed out my 401k account last year 😡😡😡

Whatever I'll just set 30% aside for taxes and put the rest back into my taxable account. VTI / VXUS

Getting back a little match is better than nothing I guess lol. At this point I have zero expectations for the job/company so any positive change that takes place is like a miracle

 

[owlegrad]

Just got the email this morning. I maxed out my 401k account last year 😡😡😡

Whatever I'll just set 30% aside for taxes and put the rest back into my taxable account. VTI / VXUS

Getting back a little match is better than nothing I guess lol. At this point I have zero expectations for the job/company so any positive change that takes place is like a miracle

Agreed. Everything seems designed to frustrate and annoy.

 

[lord999]

Yeah what a crazy reversal. 100% of 4% is MORE than 50% of 6%, right? But then it is capped at $750. And still no word on when they are going to re-activate the normal match (fwiw I never heard that they were going to re-activate in March although obviously I would love that).

Interestingly enough we had more than one person who lowered their contribution to 3% in order to avoid the non-discriminatory test failing penalty. So they missed out on 1% of the match. It’s hard to be too upset about the company going back and giving us free money that they never let on to but it still sucks to change the rules after the fact and penalize people for making the best choice they could with the facts they had at the time. Like stop dicking around and just give us our match back please.

Still a free $750? Alright. Please sir, may I have another?

Told you it was cheaper paying token benefits than paying the huge ERISA penalty. I'm surprised fiduciary duty is not invoked, someone can profit from the charge.

 

[Dred Pirate]

So for most or maybe all of 2020 my employer hasn't been matching 401k contributions, ostensibly due to the loss of business from COVID. Well I recently learned that in addition to that they are expecting to fail the nondiscriminatory test. Truly our buyout has been the gift that keeps on giving (previously we were a safe harbor plan). So I am now expecting to get back half my contributions for the year (I contributed 6% and apparently anything above 3% has to be returned to correct the failure).

Anyone ever been through this and/or have any tips for someone about to go through it?

that is really ****ty - my wife's company eliminated their contribution (extremely generous - likely one of if not the best in the country) but they made it up in other ways.

My dependent care FSA failed discrimination testing (found out they fail it every year) - not sure if it is the same process - but since I had already been reimbursed all of the funds, they just added it to my taxable income. I am guessing you will get a check (with taxes witheld) and a corrected W2

 

[owlegrad]

I am guessing you will get a check (with taxes witheld) and a corrected W2

No, they send a check with nothing withheld and it is taxed for 2021. Does not effect my 2020 taxes. Also no 10% penalty thank god.

 

[grizzlesgrizzlies]

No, they send a check with nothing withheld and it is taxed for 2021. Does not effect my 2020 taxes. Also no 10% penalty thank god.

They shouldn't impose a 10% penalty because it wasn't our choice for this money to be withdrawn.

The question I have is.... how are they still allowing us to make 401k contributions in 2021? Or should we expect them to pull the same crap on us next year?

Having a functional 401k plan was more or less a given in most if not all workplaces unless its this joke of a company lol

 

[owlegrad]

They shouldn't impose a 10% penalty because it wasn't our choice for this money to be withdrawn.

The question I have is.... how are they still allowing us to make 401k contributions in 2021? Or should we expect them to pull the same crap on us next year?

Having a functional 401k plan was more or less a given in most if not all workplaces unless its this joke of a company lol

Apparently, Brightsprings has failed every year for the past several years. So...yeah, I guess we should just plan on them failing every year. Which seems unbelievable to me. Don't enough executives and HR personnel participate in the plan to want to fix it?!

 

[JustFillIt]

About to just cash my 401 and just manage it myself.

Contributing to a non matching 401 seems bizarre.. The world, and prevailing economics are changing daily, and it’s changing big. A 401k like that is useless.

I think that corporations have figured out how to make some more money which is cutting off the workers 401k. This will become more and more normal until it is just a concept similar to a pension - a relic of the past.

 

[owlegrad]

Contributing to a non matching 401 seems bizarre.

It sucks, but it is still pretax at least. We did have at least one tech cash out her 401k but I don’t get that mentality at all. Yeah it sucks that they aren’t matching but at least you are contributing tax free. Not contributing (or worse paying the fee to cash out) seems like cutting off your nose to spit your face.

What would you do with the money after cashing out your 401k that you couldn’t do with it in the 401k?

 

[JustFillIt]

It sucks, but it is still pretax at least. We did have at least one tech cash out her 401k but I don’t get that mentality at all. Yeah it sucks that they aren’t matching but at least you are contributing tax free. Not contributing (or worse paying the fee to cash out) seems like cutting off your nose to spit your face.

What would you do with the money after cashing out your 401k that you couldn’t do with it in the 401k?

Well - the pre-tax thing is a good point. Me, personally - I have been investing in stocks, precious metals, and cryptos for many years. In my circumstance, without the match, I feel like I could make better returns with that lump sum. Essentially, I feel like I could make all of my penalty back (within a couple years time) and then some of I just managed that money myself.

The pre tax point is good - otherwise it’s just money going somewhere that is hard for me to touch. The only reason I would want money of my own somewhere that I can’t touch would be if there is a reasonable incentive to do so. For me, that opportunity cost became more attractive when I have both the pre-tax benefit and the employer match.

Now - I am just sitting back looking at that money thinking - screw you employer, I could take that money and do better with it now. If you are not ever going to give me that benefit back, I want to manage that money myself.

I would put it on a mix of investments. Lately, I have been on a physical silver hoarding addiction. I have been taking any gains I have from investments and buying 100% silver coins. I’m like Scrooge Mcduck up in here.

 

[grizzlesgrizzlies]

Apparently, Brightsprings has failed every year for the past several years. So...yeah, I guess we should just plan on them failing every year. Which seems unbelievable to me. Don't enough executives and HR personnel participate in the plan to want to fix it?!

It only takes 1 person, or a small HR team to figure this out and fix the problem. Like you said, the C-suite folks in Kentucky as well as middle management are HCPs so it behooves them to have a functional 401k plan.