Written by mayur | 12 August 2009
Posted in investment

In the wake of the financial crisis and the resulting recession, many companies have been reducing or suspending contributions to their 401k Plan. Many people don’t realize that many 401k plans, are forced to make a matching contribution.

Even if the company says it has stopped matching, it may be forced to make a match.

The question that most people have is, “Should I Continue To Make Contributions If My Company Is Not Matching My 401k?” The answer is, definitely yes if your 401k is considered top heavy.

The Government forces many small business 401ks to make a Top Heavy Contribution. This occurs when the account balance for the owners exceeds 60% of the total account for all other employees. For example, if a 401k plan had a total account balance of $1,000,000, the plan would be top heavy if the owner had a 401k account balance of $600,000 or more. When figuring out if you have a 401k that qualifies for this forced match, there are some things you should remember. Most officers in the company will be treated as an owner, as well as the owner’s spouse.

When a 401k plan is top heavy, the company must make a 401k match equal to 3% of each participant’s salary. Most 401ks match a percentage of what you put in. If you contribute $1,000 to your 401k, your company might have a 401k match equal to 25% of what you contributed, or $250. Yet, the topheavy 401k match is 3% of your salary.

If you make $30,000, your company has to give you a 3% match equal to $900. That’s more than 2.5 times larger than the regular 401k match. No, you are not getting as much as you used to. However if your 401k is forced to give you a 3% match, you are still getting free money.

Brett Goldstein is a pension expert. His goal is to have the government suspend some of the 401k rules until we can recover from the recession. Please visit http://www.401kpetition.com to help get these rules suspended.

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