I am currently restricted to a 9.5% contribution rate to my 401k due to imposed limits by my company for HCEs (apparently we failed a test last year). My CFO is telling me that it is illegal for them to allow me to contribute my catch-up amounts (I am 52) and they will not allow me to do so. I fully understand the HCE limitations but am in disagreement about the catchup $s. I want to make those contributions and am getting stonewalled by him, he basically told me to shut up about it.

Our plan does allow catch-up contributions. From everything I have read, including the summary and detailed plan docs and on-line and phone discussions with CPAs, he is dead wrong and is either stupid, stubborn or is just trying to save himself some time and effort at year end. What are my legal remedies for this? I've been advised to find an ERISA lawyer and file suit, another CPA suggested making a complaint to the dept. of labor. Any suggestions on how to get this knucklehead to change his approach short of going the expensive legal route? If I have no other options, I will get a lawyer but that seems extreme for something that my employer is so clearly wrong about.

  • You are correct (but I have no source to cite); the catch-up contributions should be outside the HCE limit, and always allowed. My employer's plan handles it that way.
    – Aganju
    Apr 29 '19 at 1:13
  • 2
    Put your anger aside for a minute and run the numbers. Catch-up contributions are $6k, so you're probably deferring maybe $2k. So worst case, it's in a taxable account with an index fund that pays out, say, 4% in dividends, you pay 15% on that 4% = 0.6%—after 20 years that's a bit over $700 you've lost to taxes. Find a fund that doesn't distribute dividends and it'll be even less. You'll eat that up with an hour or two from an attorney.
    – Kevin
    Apr 29 '19 at 17:42
  • not sure what you mean by deferring maybe $2k? I would be maxing out the $6k which could likely put me in a lower tax bracket bringing me down from a 32% to a 24% bracket (married filing jointly) so the saving are potentially very high. That is where i get all the advantage, it has little to do with the yearly taxes on the dividends.
    – Lee
    Apr 30 '19 at 2:43

You've already gotten the legal advice from CPAs and such, the question is more how to convince the CFO that what you want is allowed without forcing them. My suggestion would be to have one of the CPAs you talked to write up a "why you should allow this" letter, which you then bring to the CFO. If that fails, a complaint to the Dept of Labor shouldn't cost you actual money. (Though it may damage your relationship with the company.) A lawsuit is probably not worth the time and money needed.

  • thanks for your feedback - yes, getting lawyer would be costly but the employer would be required to pay all costs if my case wins. In addition, I'm also being advised that i may have a very good basis for age discrimination, although i have not pursued that approach at this time. I like your suggestion of a nice letter from CPA then follow up with DOL if nothing happens.
    – Lee
    Apr 30 '19 at 2:49

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