ASA Refunding 2004 401K Contributions

[HoserASA]

Not much one can do but numerous ASA pilots are receiving refunds of 2004 contributions because of the law govening low and high wage earners. If you contributed the max you'll be seeing 2-4 thousand bucks back. Nice. So, over a year and a half you get your bucks back when you thought they were working for you. And Bushie wants us to save our money! The government really burns me on this. But, it's the law, so we're screwed!

 

[Andy Neill]

Still have time to put that returned money into a Roth IRA, right? Hey, the good news is that you're getting money returned because you are in the upper tier of compensated employees. Since I'm an old guy in the lower tier, I can still put aside $18,000 this year and $20,000 next.

 

[HoserASA]

Already have Roth maxed out! Here's the question I posted on MyASA:

I received a refund check from American Century this week for $XXXX from my contributions for 2004. The letter stated that I was a "highly compensated" employee. I may be mistaken but I thought that pilots had an exemption from this? I am really disappointed that this has occurred, and resent the fact that ASA did not inform anyone of this. Will this occur for 2005 contributions too? If so, I'd stop my contributions and put the money to work elsewhere. Again, really great that ASA kept the employees in the dark about this.

 

[captain caveman]

I maxed mine out too. Does this mean we have a new tax bill coming or do the a$$holes just take it out of what is refunded?

 

[FN FAL]

I would think you could do a "rollover" into a private account. My wife was furloughed from a AC Neilson after 20+ years with them. When she left, she rolled it over her retirement into a private account. I know times are tough, but you guys should be able to do the same. Good luck!

p.s. why isn't someone from ALPA giving you guys information on how to handle this? Not a knock on your ALPA, but they should be all over this thing.

 

[HoserASA]

Tax is taken out of the refund check but you still have to report both the tax withheld, and the gross amount of the refund when you file your taxes for 2005. And no, you can not do a rollover. At least we don't get hit with the 10% penalty. About all you can do is buy stock or invest in a mutual fund, or buy a condo at the beach!

Still sucks that we can't max out our 401K. There are just not enough "lower earners" participating in the 401K to offset the "higher earners". Or they just don't participate at all. And ASA management doesn't do a thing to encourage these folks to save. Surprise there!

 

[DwayneWorthless]

ALPA: doing what it ca

To all you ASA and other "small" guys out there... ALPA is looking at your money... in fact we take some of it as your DUES. The 401K issue proves that you Regional guys make too much money. It's time to cut your pay... oops... that would mean a reduction in dues... on second thought.. let's just forget what I said. If fact ALPA will just ignore the entire issue, not to mention YOU!

 

[banned username 2]

Not much one can do but numerous ASA pilots are receiving refunds of 2004 contributions because of the law govening low and high wage earners. If you contributed the max you'll be seeing 2-4 thousand bucks back. Nice. So, over a year and a half you get your bucks back when you thought they were working for you. And Bushie wants us to save our money! The government really burns me on this. But, it's the law, so we're screwed!

The 401k contribution limit for 2005 (for those of us under 50 years old) is $14,000. Once that limit is hit, your contributions should no longer be taken from your paycheck. If you are over 50 years old, you can contribute an additional $4,000 in 2005 ($18,000 total). Once you hit one of these limits your employer should no longer deduct the contribution from your paycheck.

FYI, 2006 contribution limits will be $15,000 with an additional $5,000 for those of you over 50 years old.

 

[Andy Neill]

Falcon,
What Hoser is facing, however, is being restricted well below the $14,000 limit level because he is considered to be part of the "highly compensated employee" group (the lower limit of the group is somewhere in the $90,000-$100,000 range I believe). If the HCE's are socking away a significant amount more than the lowly compensated employees, then the excess is refunded to them as taxable income. At another operation, I have seen this cutoff somewhere in the $7000-$8000 range - well below the maximum. It seems the highly compensated employees would have an interest in encouraging their lower paid couterparts to increase the level of their own 401k participation to raise the average.

 

[Ben Dover]

Falcon,
It seems the highly compensated employees would have an interest in encouraging their lower paid couterparts to increase the level of their own 401k participation to raise the average.

Not a bad idea. But when your FO's are on welfare and government cheese, it's kind of hard to sock much away into a 401K. Not to mention these companies 401K match in the early years is embarrassing, so there's very little incentive for people on the low end to participate.

 

[banned username 2]

Falcon,
What Hoser is facing, however, is being restricted well below the $14,000 limit level because he is considered to be part of the "highly compensated employee" group (the lower limit of the group is somewhere in the $90,000-$100,000 range I believe). If the HCE's are socking away a significant amount more than the lowly compensated employees, then the excess is refunded to them as taxable income. At another operation, I have seen this cutoff somewhere in the $7000-$8000 range - well below the maximum. It seems the highly compensated employees would have an interest in encouraging their lower paid couterparts to increase the level of their own 401k participation to raise the average.

I have never heard of another employee's contribution affecting what other may contribute... I have always contributed the max allowed by the IRS and have never had any returned. Is the 401k at the airlines somehow different than at other businesses?

 

[Andy Neill]

The following IRS website sets the limit for Highly Compensated Employees for 2005 at $95k and for 2006 at $100k

http://www.401khelpcenter.com/2006_limits.html

This website answers the question about the impact of being an HCE:
http://www.smartmoney.com/retirement/401k/index.cfm?story=question
I've just been labeled a "highly compensated employee." What does that mean?
According to the 2005 rulebook, that means you make more than $95,000 a year. The IRS doesn't want 401(k) plans to favor a company's top brass. Consequently, employers must make annual assessments to ensure that their highly compensated employees (HCEs) aren't contributing a far greater percentage of their salaries to the 401(k) plan than the peons. So if the employees who earn less than $95,000 a year at your company are contributing to the 401(k) plan at a lower rate than HCEs like you, expect your contribution limits to be lowered.

 

[HoserASA]

Here's the response I received from ASA. At least we can get the max contributions from the company...for now!



Basically, if you made $90,000 in 2003 you fall under the Highly Compensated. Pilots are put to the same test as everyone, per the IRS. We have been failing this test every year. However, instead of limiting contributions to the plan, we are allowing employees to take advantage of the company match and full contribution to the 401K plan. We did not want to force our employees to stop contributing to the plan and not get the value of the company match. If we were to limit the contribution close to where we would think that they would no longer be able to contribute, say $11,000, we feel that we would be limiting the employee to have control of their finances. The downfall is that they will continue to get refund checks until we get a higher number of employees in the lower pay scale to contribute to the plan.


This if from the http://www.401khelpcenter.com/mpower/feature_030702.html Web site.
Annual Test
Every year, the IRS requires all 401k plans (except safe-harbor plans, as described below) to take a discrimination test. Most easily pass it. Still, just under 40 percent of plans polled by the Profit Sharing/401k Council of America reported refunding or restricting HCE contributions in order to pass the test in 2000. And, 16.7 percent of plans reported returning excess contributions.
The reason for the test is "Congress didn't want these considerable tax breaks to be only enjoyed by the HCEs. This is the way they encourage employers to let everyone play in the pool," said Martha Priddy Patterson, analyst with Deloitte & Touche LLP's Human Capital Advisory Services group.
The test requires that employees be split into two groups: highly compensated and nonhighly compensated. For the 2001 tax year, highly compensated employees are those who earned more than $85,000 in 2000, or owned more than 5 percent of the business in 2000 or 2001. (The compensation limit is based on the previous year's compensation, while the ownership limit is based on the previous or current year.) You are considered highly compensated in 2002 if you earned more than $85,000 in 2001. You will be considered highly compensated in 2003 if you earn more than $90,000 this year (2002).
The test is as follows: the average contributions of highly compensated employees, as a group, cannot exceed the average contributions of nonhighly compensated employees, as a group, by more than about 2 percent. (Age-50 catch-up contributions are not included in discrimination testing.) If the HCEs exceed this threshold and the employer fails to correct the imbalance, the plan could lose its tax-qualified status and all contributions and earnings would have to be distributed to all plan participants. In addition to the 2 percent spread, the contributions of all HCEs as a group may not be more than two times the percentage of other employees' contributions.
Consequently, HCE contribution levels are based on the contributions of non-HCEs. By setting up this carrot-and-stick system, Congress made it in the best interest of highly compensated employees to encourage non-HCEs to contribute to the plan.
This is from the SPD (401K) in myasa
(12) Highly Compensated Employee means, for a Plan Year, an individual who either:
a) owns (or, during the prior Plan Year, owned) more than 5% of the Company; or
b) earned more than $90,000 in the prior Plan Year. The $90,000 level is adjusted periodically for cost of living by the Secretary of Treasury and is effective beginning in 2002.

 

[captain caveman]

Hoser and friends,
I made well under 90 since I'm more junior so I get to keep mine maxed. 'Sounds pretty retarded to me, but I guess I'm doing my share for the "LCE's."