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If you read the legislative history…of the 401(k), it’s clear this was a tax break for the folks who made lots and lots of money.

This dingbat really believes this?

The U.S. law regarding 401(k) plans actually prevents such plans from operating this way. For one thing, the total amount of annual contributions is capped for any individual participant in a plan. Also, employers have to pass a "income test" for their 401(k) plans, under which highly-compensated employees lose the tax deductibility of their contributions if the company doesn't have enough low-wage and middle-income participants in the plan.

The second point is an interesting one because it drives some companies to be very aggressive in encouraging participation in their 401(k) plans. Many companies now have a process in place whereby new employees are automatically enrolled in the plan with some nominal contribution (4% or 5%) unless the employee opts out.

Exactly. The “pre-tax” contribution limit on 401k’s in 2012 is $17,000 per year, with an addition $5,500 for workers 50 and older who designate a “catch up contribution. And the total amount that both the employee and employer (if the employer provides a match) is at $50,000.

And what you speak of as an “income test” is known as Section 415 Anti-Discrimination Testing.

Plans with more than 100 participants undergo annual anti-discrimination tests to ensure that highly compensated employees are not receiving beneficial treatment under the plan. These tests compare the contributions and deferrals of highly paid workers and owners to the rest of the eligible employees. Highly compensated workers cannot contribute greater than 25% more than their fellow workers on average. Employees with contributions over the limit must undergo corrective action.

My company auto enrolls all eligible new hires at 3%. They can opt out but most don’t. My company matches up to 6% with each pay and it is 100% vested which is a very generous plan. Participants can also raise or lower their contribution % throughout the year but are capped at the current contribution limits.

Very good information. I think the bigger concern for the government was the fact that some workers do not have access to a 401(k) where they work. Additionally, they were concerned for those workers enrolled in a 401(k) that they were not being provided enough information and guidance on how to manage their 401(k). I don’t know about other Freepers, but the company I worked for until recently had been sending out a lot of information that covers the latter point.