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John, Employment Lawyer
Category: Employment Law
Satisfied Customers: 5617
Experience:  Exclusively practice labor and employment law.
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i am an employee of a company that has a 401k benefit plan,

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i am an employee of a company that has a 401k benefit plan, as a highly compensated employee, i participated in fully utilizing my per tax benefit in 2011. In 2012, the company's planned failed testing due to lack of participation by employees, hence my contributions were returned to me. Does my employer have the obligation to pay my taxes on my contributions I have been denied since it was a benefit my company said I had?
Hi, thanks for submitting your question today. My name is XXXXX XXXXX I’m happy to assist you with your question today.

When a plan becomes disqualified, the deferrals are to be returned to participants and the participant must include the deferral amount in his/her income for the year. See IRS Publication 401k mistakes. In other words the returned deferral is taxable to the employee. Additionally the employer may be subject to a penalty on its own from the IRS for attempting a prohibited transaction. What I might suggest, if you are concerned about taxable income on the year, is to open or contribute to an IRA on your own. The limits aren't as high as a 401k, but it would save you some taxable income. You also could negotiate with your employer to pay you more income to make up for the tax losses, but that would be strictly voluntary on the part of your employer; not a legal obligation.

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