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Handling year end "true-up"


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9 replies to this topic

#1 Kconsultant

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Posted 29 April 2003 - 01:37 PM

We have to do some '02 year end "true-ups" to participants that did not receive the full company match. Because we changed vendors in mid-year, I am getting 2 different opinions are how these should be calculated and then reported.

1. says we should look at ALL the payrolls for the year, figure out when the match may have been "underpaid" (because a participant had maxed out their deferrals or had significantly changed their deferral percentage) and calculate earnings and interest from this time through the end of the year.

2nd vendor feels we should only calculate the "true-up" and credit interest from 1/1 of this year until the time we pay this true-up back into the participant's account.

What has been others experience? Also, what is the proper form (and timing) for reporting these?

Thanks!

#2 Harwood

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Posted 29 April 2003 - 02:07 PM

This is an employer contribution for calendar year 2002, right? It is not late [unless the plan document states a deadline for depositing the match].

True-ups are not mandatory; certainly the timing to do a year-end true-up is not possible until after the year is over. I see no need to do any interest calculation at this time.

#3 Kirk Maldonado

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Posted 29 April 2003 - 03:11 PM

Harwood:

Whether or not true-ups are mandatory depends on the terms of the plan.
Kirk Maldonado

#4 mkimball

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Posted 29 April 2003 - 03:17 PM

You also need to look at the frequency for the match. By that I mean, it may be done on an annual basis in the document, with annual compensation, or it could be at the end of each month, quarter, etc. True ups would follow that same cycle. The document already answers the question if you dig into it. You have to follow the terms of the document. Different TPA firms have different views about it and set up their prototype documents (assuming they are not using IDPs) to reflect their view. Then when client moves, different views (and documents) enter the picture. You must always go by the terms of the document currently in effect.

#5 Fredman

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Posted 29 April 2003 - 03:18 PM

In my limited experience, I've never seen interest calculated on match true up contributions. Its possible that your document addresses this. It would be interesting to hear why your vendors feel the need to include interest.

#6 Kirk Maldonado

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Posted 29 April 2003 - 03:23 PM

My experience has been the same as Fredman.
Kirk Maldonado

#7 Kconsultant

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Posted 29 April 2003 - 03:31 PM

The match is written to be based on annual compensation. The client has been trying to smooth it out by calculating it themselves and paying it on a payroll period basis.

Because of some large swings in deferral percentages in '02, this is the first year they have run into this problem.

So is everyone saying they owe ONLY the true-up match amount and nothing from an earnings or interest standpoint?

Thanks for all the feedback!

#8 Fredman

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Posted 29 April 2003 - 03:41 PM

Assuming the document doesn't address earnings on true up contributions, then yes, I'd say they only need to contribute the true match amount.

As a side note, we try to keep our clients and documents in-sync. In other words, if they want to make match contributions each payroll, then write the document to reflect this so you don't have to calculate true ups each year.

#9 mkimball

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Posted 29 April 2003 - 06:56 PM

we do the same thing that Fredman suggests, make the document and the match deposit frequency agree to avoid true ups.

#10 four01kman

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Posted 30 April 2003 - 02:00 PM

I agree with those that take the position true-ups only are made up of the match contribution, without any interest calculation. This is a timing issue, not an investment issue. If the plan allows "front-loading" of participant contributions, the true-up simply allows those participants to receive the total match the plan provides. Of course, the plan could provide for interest, but I've not seen one. Kind of like Ogden Nash's cow.
Jim Geld