ANonymously contributed:
For those of you who chose TCP2, are you aware of a change in policy for 2009 in which 401k contributions under the over-50 "catch up" provision are no longer matched up to 6% of your income by LLNS? Depending on you income, this will cost you as much as $5500.
Tuesday, August 25, 2009
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6 comments:
It seems the rare bird is going to get caught on this one. Taking the current non-catchup limit of $16,500, and dividing by 6%, says that someone's gross would have to be over $275,000 to start to get any 6% match to apply against a catchup contribution.
I don't think this new provision will squeeze the toes of the rank and file.
It's just another in a series of Take Aways.
"I don't think this new provision will squeeze the toes of the rank and file."
It isn’t quite that simple. It can affect far more people than just those who make over $275K.
For example, suppose you have chosen to contribute $1100 each pay period to your tax deferred 401k. Such a contribution enables someone over 50 to reach the $22,000 pre-tax maximum somewhat before the end of the year. Terminating contributions once the maximum is reached would then provide additional take-home pay to cover holiday expenses.
If you contribute as above, you will reach the $16,500 maximum in 15 pay periods. Exactly when this occurs will be slightly longer than 30 weeks due to the fact that contributions are not withheld on the third pay period in a month. Of course, LLNS will contribute only 6% of your pay, so most people (those earning less than $275K) will receive less than 0.06x$1100 (=$660) in the match.
If you now continue to contribute $1100 per pay period and designate it for the $5500 pre-tax catch-up, you will get no match. Under last year’s rules, your match would continue for another 5 pay periods. This year, however, if you want to get a match and contribute past the 15 pay periods, you have to designate your contributions to be after-tax (so much for the over-50 benefit).
I personally was caught in this trap even though I make less than $275K. In my case, however, I am fortunate enough financially that I can contribute whatever I want to my 401k. My contribution is limited only by the maximum allowed total of pre-tax, catch-up, after-tax, and LLNS match. Once I figured out the scam that LLNS implemented this year, I simply added additional after-tax contributions and lost the LLNS match for only one pay period.
For the less fortunate, there are some optimization strategies that can be invoked to deal with this year’s rules and minimize the loss due to LLNS’ policy change. However, since LLNS did not make its policy change or implications well known, LLNS will generally benefit at the expense of the most over-50 employees.
Better, faster, cheaper—NOT!
LLNS really does not care about you. You need to understand your benefits and look out for yourself. If you quickly jump to conclusions (I make less than $275K so it doesn’t affect me), LLNS laughs all the way to the bank. My guess is that some LLNS manager received a bonus for devising this scheme to take away benefits and have most employees not know what was happening to them.
Thank you Aug 30 7;15PM!
for you informative comment.
This is the kind of comment we need.
The kind that explains, not just blames!
Since this post first came out, I have checked with many over-50 TCP2ers. Not one realized what was happening. Several went back and checked their statements and realized that had been had.
September 3, 2009 8:59 PM
I also have been had by this. I also talked with others over-50 and they had no idea what was happening.
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