401k Bailout Needed

In the wake of the financial crisis and the resulting recession, many plan sponsors have been reducing or suspending contributions to their 401k plans. Accordingly, on May 18, 2009 the IRS issued proposed regulations that will permit employers who are experiencing a "substantial business hardship" and who maintain a safe harbor 401(k) plan to reduce or suspend the safe harbor non-elective contribution without losing the tax-qualified status of the 401k. Under the existing regulations, a Safe Harbor 401k Plan using matching contributions has the ability to reduce or suspend the 401k match at any time during the plan year. However, the existing regulations do not permit a plan sponsor maintaining a Safe Harbor 401k Plan, with non-elective contribution method, to reduce or suspend the safe harbor non-elective contribution during the plan year. However the IRS has stated that the 401k plan will not be exempt from the top-heavy rules. On one hand the government is allowing the companies to suspend the 401k match, as they do not have the money. Yet on the other hand, they are forcing them to make a 401k contribution, which is normally larger than the match. 401ks need to be bailed out by the Government. They need to suspend the Top Heavy Rules so that companies with a substantial business hardship can recover.

65K 401k match

Just got off the phone with a client who may or may not have the money to make his 401k match for 2009. He was making a 70k 401k match. I explained that if he terminated the match, he would still owe 65k to his 401k. Why? The owner of the company and his wife, have a combined 401k balance that is more than 60% of the total 401k for all employees. If the 401k account balance was $1 million for all of the employees, the owner and his wife have more than $600,000. Thus he owes a 3% contribution to his employees; that's 3% of salary. If so he stops matching he stills owes $65,000 to the 401k. How is this good for business? What steps will he take to make sure that he can afford the $65,000? Will he fire some employees? Will he terminate the 401k? That's why its important to sign the petition at wwww.401kpetition.com and get this top heavy law suspended.

Who cares

Many people who have seen the site seem to think “who cares”. Employees are looking out for their 401k account and want the company to make some sort of match. Well if the company can’t afford to make the mandatory 401k contribution, known as a Top Heavy Contribution, it faces penalties. In order to avoid the penalties, a company can 1) terminate the 401k, 2) lay off employees so they can afford to make the Top Contribution, 3) go out of business, 4) the IRS can close the 401k plan down and make the money taxable. The likelihood that the IRS would close the 401k down, is unlikely. However, it is much better if the company could suspend the 401k top heavy contributions, temporarily, and then repay the 401k top heavy contributions that it owes over the next few years. My suspension idea, gives a company an option to suspend what it owes the 401k until the economy can improve. Please sign the petition at www.401kpetition.com

First Blog Post

34% of U.S. employers have already reduced or eliminated matching contributions to their 401(k)s, according to several surveys. I know that isn’t very exciting or interesting. However, existing 401(K) regulations may force a company to make a matching contribution, even when it stopped the match. Can you imagine being forced by the Government to make a 401(k) contribution during the recession; when you just don’t have the money. To add insult to injury, companies may also face penalties if they can’t make this mandatory contribution. I’d ask that you to sign the petition and help get the laws changed so that companies are not forced to make 401(k) contributions when they just don’t have the money.