I just received a notice from my employer that based on my 2021 income, I’m considered a highly compensated employee for 2022 and not eligible to participate in the company’s 401(k) program for 2022 (technically they’ve set a limit of a 1-time $10 contribution for the year). The only option provided is a nonqualified savings plan, which is not a retirement plan at all and pays out as a lump sum on leaving the company, and as I understand it is a company asset (even though contributions would be deducted from my pay) and has no protections.
Highly compensated staff employees (2021 earnings over $135,000) may only participate in the 401(k) plan on a very limited basis. Generally, you will be limited to a one-time $10.00 (ten dollars) 401(k) contribution unless you will turn age 50 or above next year.
Is this legal? Can they limit employee participation in the 401(k) plan based on income in this way? I’m guessing this is being done so that the “average” contribution amount for HCE’s can work out in favor of the executives?