I would like to double my 401(k) contribution to 20% instead of the present 10% allowed by my employer. I raised the question and was told the company would flunk its highly compensated employee test if it raised the percentage we are allowed to save. I can afford to save way more and would like to reach the government maximum of $11,000. Can my company really impose a lower cap than that? Didn't the law just change?

Your company isn't breaking the rules. The government wants to make sure that highly paid employees (people earning more than $90,000 in 2002) aren't benefiting from 401(k) plans a lot more than everyone else. If lower-paid employees don't contribute enough money each year, employers may have to cap high-paid employees' contribution limits in order to pass the government's nondiscrimination tests.

This means that even though the new tax law increased the maximum annual 401(k) contribution to $11,000 in 2002 (plus an extra $1,000 if you're 50 or older), employers can still cap your contribution at a lower level so their plans will be approved. Even people who aren't considered highly compensated may be subject to limits that keep them below the $11,000 maximum.

Under the old law, the government had also capped employer-plus-employee contributions at 25% of the employee's annual salary. When this cap was in effect, many employers had limited their employees' contributions to 15% of their income. A lot of employers did away with the 15% cap after the law changed, but they weren't required to eliminate the limit -- so they may still cut you off well before you reach the $11,000.

MORE: Kiplinger.com | Your Retirement | Column

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