SkyWest Employee Stock Purchase Program and 401K

[JoeMerchant]

I must be missing something because I was able to contribute $15,500 to my 401k this year.

The IRS limits "highly compensated employees" from maxing out their 401k's....The value depends on the other employees at your company and how much they contribute to their 401k's....

Yet another example of how liberal "spread the wealth" policies negatively affect regular people...Social engineering at it's finest...

 

[Nevets]

The IRS limits "highly compensated employees" from maxing out their 401k's....The value depends on the other employees at your company and how much they contribute to their 401k's....

So I guess that my fellow coworkers make a lot and they contribute a lot to their 401ks? I'm not sure that is the case.

 

[JoeMerchant]

So I guess that my fellow coworkers make a lot and they contribute a lot to their 401ks? I'm not sure that is the case.

Are you telling me you have never heard of the "highly compensated" issue regarding 401k's...aren't you an ALPA rep...?

The value depends on the individual situation at your carrier....but here at ASA we would hit it when we got to about 100K a year....Have you made that much at XJT yet?

 

[JoeMerchant]

From Wikipedia:
http://en.wikipedia.org/wiki/401(k)

Highly Compensated Employees (HCE)
To help ensure that companies extend their 401(k) plans to low-paid employees, an IRS rule limits the maximum deferral by the company's "highly compensated" employees, based on the average deferral by the company's non-highly compensated employees. If the rank and file saves more for retirement, then the executives are allowed to save more for retirement. This provision is enforced via "non-discrimination testing". Non-discrimination testing takes the deferral rates of "highly compensated employees" (HCEs) and compares them to non-highly compensated employees (NHCEs). An HCE in 2008 is defined as an employee with compensation of greater than $100,000 in 2007 or an employee that owned more than 5% of the business at any time during the year or the preceding year.[5] As an alternative to the $100,000 limit for determining HCEs, employers can elect to define the top-paid group of employees as the top 20% of employees ranked by compensation.[6] That is for plans whose first day of the plan year is in calendar year 2007, we look to each employee's prior year gross compensation (also known as 'Medicare wages') and those who earned more than $100,000 are HCEs. Most testing done now in 2008 will be for the 2007 plan year when we compare employees' 2006 plan year gross compensation to the $95,000 threshold for 2006 to determine who is HCE and who is a NHCE.
The average deferral percentage (ADP) of all HCEs, as a group, can be no more than 2% greater (or 150% of, whichever is less) than the NHCEs, as a group. This is known as the ADP test. When a plan fails the ADP test, it essentially has two options to come into compliance. It can have a return of excess done to the HCEs to bring their ADP to a lower, passing, level. Or it can process a "qualified non-elective contribution" (QNEC) to some or all of the NHCEs to raise their ADP to a passing level. The return of excess requires the plan to send a taxable distribution to the HCEs (or reclassify regular contributions as catch-up contributions subject to the annual catch-up limit for those HCEs over 50) by March 15th of the year following the failed test. A QNEC must be an immediately vested contribution.
The annual contribution percentage (ACP) test is similarly performed but also includes employer matching and employee after-tax contributions. ACPs do not use the simple 2% threshold, and include other provisions which can allow the plan to "shift" excess passing rates from the ADP over to the ACP. A failed ACP test is likewise addressed through return of excess, or a QNEC or qualified match (QMAC).
There are a number of "safe harbor" provisions that can allow a company to be exempted from the ADP test. This includes making a "safe harbor" employer contribution to employees' accounts. Safe harbor contributions can take the form of a match (generally totalling 4% of pay) or a non-elective profit sharing (totalling 3% of pay). Safe harbor 401(k) contributions must be 100% vested at all times with immediate eligibility for employees. There are other administrative requirements within the safe harbor, such as requiring the employer to notify all eligible employees of the opportunity to participate in the plan, and restricting the employer from suspending participants for any reason other than due to a hardship withdrawal.

 

[Nevets]

Are you telling me you have never heard of the "highly compensated" issue regarding 401k's...aren't you an ALPA rep...?

The value depends on the individual situation at your carrier....but here at ASA we would hit it when we got to about 100K a year....Have you made that much at XJT yet?

Yes, I've heard of it. But its never been an issue for me. And no, I'm no longer a rep. I've never heard of this being an issue for anyone at XJT and I'm sure there are some that make over 100k a year. Are you saying that SKYWRJGUY and others on this thread have made 100k a year and thus have this as an issue?

 

[SLUF4]

Does anyone know the tax rules on selling stock quickly. I thought for some reason the taxes were really high if I sell right after the stock purchase. I thought there was a time like 60 days or something that would avoid that.

 

[JoeMerchant]

Yes, I've heard of it. But its never been an issue for me. And no, I'm no longer a rep. I've never heard of this being an issue for anyone at XJT and I'm sure there are some that make over 100k a year. Are you saying that SKYWRJGUY and others on this thread have made 100k a year and thus have this as an issue?

There are quite a few at ASA and Skywest that hit the 100K threshold every year...Many ASA pilots ran into this problem.....

 

[JoeMerchant]

Does anyone know the tax rules on selling stock quickly. I thought for some reason the taxes were really high if I sell right after the stock purchase. I thought there was a time like 60 days or something that would avoid that.

You have to hold it one year to qualify for the lower capital gains rate....otherwise it is taxed at the marginal tax rate.

 

[sweptback]

There are quite a few at ASA and Skywest that hit the 100K threshold every year...Many ASA pilots ran into this problem.....

With the new contract the discrimination test is performed just against ASA pilots, which should prevent the HCE trigger from happening. I assume ExpressJet is the same way.

Previously, we were compared with all ASA employees, most of which didn't contribute to the 401k. I think company-wide ASA is at 30% participation, which is why we ran into trouble with it before.

 

[IHateDaley]

Does anyone know the tax rules on selling stock quickly. I thought for some reason the taxes were really high if I sell right after the stock purchase. I thought there was a time like 60 days or something that would avoid that.

You will not get favorable tax treatment if you sell the shares less than 2 years after the beginning of the purchase period AND less then 1 year after the purchase date. So with the SKYW plan, we must wait 2 years after the beginning of each 6-month period for the sale to be treated as a qualifying disposition.

If you don't wait the required time, your sale will be treated as a disqualifying disposition. That means that the proceeds from the sale will be treated as ordinary income and taxed at your normal tax rate, not the (usually) lower capital gains rate.

There are many caveats and gotchas in Section 423 that deals with ESPPs, and also additional rules dealing with short and long-term capital gains, so consult your tax advisor and a shrink before you file your return.

 

[Chairman]

Regardless how many pages we argue over the math 5% is a hell of a lot less taken at a discount 1 time v.s. 15% taken at the lower of two prices. Either way you work it major loss in total compensation!

 

[JoeMerchant]

With the new contract the discrimination test is performed just against ASA pilots, which should prevent the HCE trigger from happening. I assume ExpressJet is the same way.

Previously, we were compared with all ASA employees, most of which didn't contribute to the 401k. I think company-wide ASA is at 30% participation, which is why we ran into trouble with it before.

That's all true...but for years it was an issue. Many pilots had their contributions returned because they "made too much"....another case of social engineering that hurts people...

It should have never been an issue in the first place....Why penalize people who try to save because others don't....?

Now we are seeing changes in the ESPP because of govt. accounting rules....

 

[SLUF4]

man..2 years-well maybe that'll give the bull market time to come back around

 

[sweptback]

That's all true...but for years it was an issue. Many pilots had their contributions returned because they "made too much"....another case of social engineering that hurts people...

It should have never been an issue in the first place....Why penalize people who try to save because others don't....?

Now we are seeing changes in the ESPP because of govt. accounting rules....

It wasn't because they made too much, it was because they unfairly benefited from the tax deduction. A person making over $100k has more money to invest than somebody making $50k and coincidentally gets a tax break on top of that.

Anyway, it happened under the Reagan administration, although the 401k was done under Carter:

"Also in 1984, Congress passed legislation requiring nondiscrimination testing, to make sure that the plans did not discriminate in favor of highly paid employees more than a certain allowable amount." -Wikipedia

 

[JoeMerchant]

It wasn't because they made too much, it was because they unfairly benefited from the tax deduction. A person making over $100k has more money to invest than somebody making $50k and coincidentally gets a tax break on top of that.

Anyway, it happened under the Reagan administration, although the 401k was done under Carter:

"Also in 1984, Congress passed legislation requiring nondiscrimination testing, to make sure that the plans did not discriminate in favor of highly paid employees more than a certain allowable amount." -Wikipedia

Are you defending it? It was a Democratic Congress in 1984...You shouldn't be penalized for making "too much"....We reward bad behavior in this country and penalize good behavior....