Due to the nondiscrimination regulations for tax qualified plans, the IRS places a limit on the amount that a Highly Compensated Employee (HCE) may save in a 401(k) plan. This limit is based on the average rate of savings for employees who are not HCEs.
The IRS defines an HCE as an employee who is a 5% owner in the current or previous plan year, or an employee who earned over $115,000 in the previous plan year. Through attribution, certain family members of 5% owners may also be considered HCEs for testing purposes.
If the savings rate of the HCEs under your firm’s retirement plan exceeded the allowable limit and a portion of the 2012 plan year contributions and earnings were refunded to your HCEs in March, chances are you have some unhappy folks in your office. The good news is – there are changes you can make now to avoid or limit refunds in the future.
Brian Schiedel is responsible for monitoring daily valuation recordkeeping services, ensuring that transactions meet strict procedural guidelines, and providing compliance and other consulting services for Burke Group’s retirement plan clients. He serves as the direct Relationship Manager for more than 30 retirement plans.
Prior to joining Burke Group, he obtained his bachelor’s degree in management science from the State University of New York at Geneseo. He has also obtained the Qualified 401(k) Administrator (QKA) designation through the American Society of Pension Professionals and Actuaries (ASPPA).