Hey everyone, welcome to episode 105 of Money Girl.

This is Finance Friday, where I answer your burning money questions.

I'm Laura Adams, an award-winning author, spokesperson, money speaker, and founder of the Money Stack.

That's my substack newsletter. You can sign up and learn more

at laura d adams.com. Today, I have a great question that I don't think I've ever received before.

It comes from J.P., who says, over the last seven to eight years with two different employers,

they've returned some of my 401K contributions due to failing the discrimination test. It seems unfair to penalize me for my co-workers'

lack of contributions. What can I do? Thank you so much for your question, Jay. I can definitely hear your frustration about not being able to make more contributions

to your retirement plan.

In this podcast, I'll explain what the retirement non-discrimination test is and what to do

if your contributions get returned.

So first, let's talk about what exactly I'm talking about with the non-discrimination test.

Employers that offer workplace retirement plans get benefits from doing that, like getting a tax

deduction for paying matching contributions.

In addition, employees who participate get valuable benefits

like deferred taxes on contributions and investment growth. In exchange, the Internal Revenue Service,

or IRS, requires that certain retirement plans not disproportionately favor highly paid employees or company owners.

They require annual non-discrimination testing to enforce an acceptable balance of participation

that doesn't unfairly benefit top earners over the rest of the workforce.

Employers have to use various non-discrimination

tests that compare the average savings or ownership status of highly compensated employees

or HCEs to the average savings of everybody else. The calculations get a bit complicated and they do

...