Here’s another of my favorite stories “from the vault.”

Gina was the HR director for a company that contains mostly low-compensation employees—like delivery truck drivers, call center workers, and a marketing team—and a small group of high-compensation executives at the top. “We don’t have much of a ‘middle class’ here,” she explained. Per the IRS, these two groups are known as Non-Highly Compensated Employees (NHCEs) and Highly Compensated Employees (HCEs).

“So let me guess. All your execs got big refunds of the contributions they made into the 401K retirement plan last year.”

“That’s right,” Gina confirmed, “and they’re not happy about it; they wanted those contributions matched and invested.” They don’t understand why they are getting refunds and they are convinced there is something wrong with our plan.

“Sounds to me like you’re failing the non-discrimination test.”

“I don’t think so,” Gina replied. “Our diversity policies…

“No … not that kind of discrimination. The law says that HCEs can’t receive outsized benefits compared to NHCEs. Your low-comp employees are making relatively small contributions to the retirement plan. They bring the average down so your high-comp people are getting refunded the difference.

“So I guess you’re talking about wage and compensation discrimination. Is there a solution?”

“Of course, Gina. There are a few things we can try. We can look at a different type of retirement plan … but we might be able to bypass the problem using a technique called ‘shifting.’ It sounds simple, but it’s a fairly sophisticated testing technique that allows shifting of certain contributions from one test to another. What causes one discrimination test to fail can sometimes be the very thing that helps to pass a different test.”

“I’d love it if we can make that work?” pleaded Gina. “My execs are pretty unhappy and they’re breathing down my neck to fix this!”

“Shifting doesn’t work for all plans, but when it does it can save tens of thousands of dollars in refunds and keep your key employees happy!”


“This is exactly the kind of problem we Retirement Plan Specialists are here to solve. I’ll take a look at your plan and your numbers and get back to you later today with a workable strategy.

If you’ve been too busy growing your business to save for retirement, you’re not alone. Get in touch with a Professional Retirement Plan Manager and start building your future today.