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Let's say you, as an employee, have $5,000 in 0% vested funds in a 401k. You don't get the money when you leave but what does happen to that money? Does that money get redistributed out to other 401k holders or does it go back to the company's general fund to be spent on whatever?

Also... if your company doesn't do any matching 401k contributions your company is then subject to the highly compensated employee test. What is the minimum amount of matching a company can do to satisfy this requirement? Like a lot of companies that do matching do something along the lines of 100% for the first 3%. But what if a cheap skate company were to do something like 1% for the first 1%? Would that kind of matching eliminate the highly compensated employee test for the company?

(for some context, I'm a highly compensated employee that's not able to make meaningful contributions to my 401k; I'm trying to come up with ideas that might make my company more open to the idea of matching contributions)

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  • "Does that money get redistributed out to other 401k holders "? Why would it? – RonJohn Feb 21 '20 at 19:05
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  • @RonJohn My company redistributes forfeited 401k money to the other employee 401k accounts. They only started this a few years ago. – mkennedy Feb 21 '20 at 21:53
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Unvested funds goes back to the company (including any profit/loss from those funds).

As for the HCE test, I'm not an expert there but my understanding is that all companies are subject to the HCE test whether they match or not. The intent of the test is to ensure that companies don't favor highly-compensated employees unfairly (i.e. 401(k) becomes a benefit for the higher ups and not the broader employee base). Many companies get around that by providing a "safe harbor" match that is contributed regardless of whether you contribute anything or not. That way you don't have to reduce your paycheck to take advantage of retirement benefits.

I'm a highly compensated employee that's not able to make meaningful contributions to my 401k; I'm trying to come up with ideas that might make my company more open to the idea of matching contributions

If you can't contribute, then why do you care if they match or not? Seems like a safe harbor contribution would be more beneficial to you.

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  • "a safe harbor match that is contributed regardless of whether you contribute anything or not" -- that's neither necessary nor sufficient to qualify a plan for safe harbor. There are three different contribution formulae for safe harbor, and the one you described is not a match, it is called "non-elective". – Ben Voigt Feb 21 '20 at 20:26
  • @BenVoigt Thanks for clarifying - I may have some of the terminology wrong but hopefully it gets to the heart of the OP's question. – D Stanley Feb 21 '20 at 20:37

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