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Correct. The no limit means that the employer's contributions aren't arbitrarily limited by some percentage of the employees' salary, which has the effect of h
by CydeWeys 6y ago
Correct. The no limit means that the employer's contributions aren't arbitrarily limited by some percentage of the employees' salary, which has the effect of hurting lower income employees.
- bonestamp2 6y agoI wonder how they do that and stay compliant with IRS non-discrimination testing. Our company capped 401K contributions for "Highly Compensated Employees" (HCEs are $125K/yr+ according to the IRS) a couple years ago to stay compliant with IRS non-discrimination testing. From what I understand, a certain percentage of 401K contributions have to come from non-HCE employees, otherwise the HCEs get capped.
- CydeWeys 6y agoThe HCE test is complicated, but it basically amounts to ensuring that the disparity between 401k plan usage isn't too great by compensation (so like a Gini coefficient for 401ks). The way Google satisfies the test probably comes down to three factors: 1. All employees are opted into the plan at hire at 10% of salary, possibly even with a default 1% contribution increase per year (I'm unsure). 2. It's actually not exactly 50% match; it's 100% match on the first $3k and then no additional match on the next $3k, or in other words, it's 100% match that smoothly decreases down to 50% match by $6k and then stays at 50% all the way up to the IRS limit. This helps reduce the 401k "Gini coefficient"; it's progressive contributions. 3. A lot of the lowest rungs of jobs are TVCs, not employees, so they don't even count for this test because they're technically employees of another company (which itself would have a much worse 401k plan than Google's, if any). It's not great but it's relevant here :/