What retirement planning options are available to highly compensated employees?

November 8, 2006

Date:  Thu, 05 Oct 2006
From:  Bryan

Michael,

Please help...

If you are classified as a highly-compensated employee, your 401(k) contribution is limited. What other options does a highly-compensated employee have?

Thank you.

Bryan

Answer

Date:  Wed, 01 Nov 2006

Hello Bryan,

If the employer is willing to contribute 3% of compensation for all employees, the limitation for highly-compensated employees is eliminated.

The Pension Protection Act of 2006 includes a provision permitting automatic enrollment of employees in a 401(k) plan, with an election available to opt-out of participation, effective for plan years beginning after December 31, 2007.

Another possibility that has become much more complex is to set up a non-qualified deferred compensation plan with your employer. There a many new rules that make setting up such a plan more difficult and increases the risk for employees.

These are not simple, inexpensive solutions. You and your employer should work with qualified legal counsel to explore your alternatives.

Good luck!


Mike Gray

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