Elle wrote:
> "Marco Polo" <Marco@[EMAIL PROTECTED]
> wrote
>> I have jokingly advocated identifying those that do not
>> max out enough to get all the matching, and firing them
>> for excersizing such poor judgement. If they are making
>> such bad financial decisions in their own lives, what kind
>> of decisions are they making regarding company matters?
>
> Fair point. I will raise you that management likes not
> having to match and likes even more having an automaton who
> just takes orders.
It's not as simple as that -- the match often allows that same
management to contribute more to their own plans.
This is getting a little far afield for MIFP but it might help people
understand why matching percentages are set where they are. 401k plans
must pass "nondiscrimination tests," because the plans are supposed to
benefit all employees, not just highly compensated ones. Tests look at
contributions and balances among all employees, sorted by compensation
levels. If only senior executives are contributing it will cause some
problems -- perhaps some MIFP readers have encountered this, where they
needed to undo a contribution.
By adopting a "safe harbor" 401k plan, an employer can avoid some of
these tests. One safe harbor involves offer matching contributions of at
least some minimal levels. So this is one reason a plan might offer "3%
match on the first 3%," that's part of one of the safe harbor plans.
So to the OP -- in effect this is another benefit to the company for
matching, it has to do with IRS rules about nondiscrimination testing
and "safe harbor" 401k plans. Without the match the plan could be out of
compliance, and the senior execs couldn't contribute as much.
-Tad
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