Match Correction

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Plan with a SHMAC and segregated accounts. The ER calculated the match incorrectly throughout the plan year so now we have participants that were underfunded and overfunded with regards to the match. Most of the SDAs have losses. I know I can transfer from the overfunded to the underfunded but what would be the best way to handle the losses?

[ccassetty]

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Your email is a little unclear as to how this happened. If this is a trueup situation you don't need to make any changes provided the plan document allows the employer to calculate the match on a payroll by payroll basis.

If the employer did, infact, calculate the match incorrectly, you can't penalize the participants that received too much by taking the entire overage out when there has been a loss.

If it were me, I would calculate how much the over contributions are currently worth taking the losses into consideration and take that much out of the accounts, then have the employer make up any difference that is needed to be deposited for those who got shorted. If the accounts that are to receive additional contributions had gains, the employer will need to make these up as well. The key is to make everyone whole as though the mistake had not happened.

If the document, in fact says that the match is on a payroll by payroll basis, then these adjustment calculations should be done on that basis as well. A lot of extra work. If the employer isn't willing to pay for it, then just do LIFO calcs based on total deferrals and comp.

If the plan document does not specify payroll by payroll calculations, then the document should be amended to allow the employer to calculate the match in this manor so that trueups will not have to be made each year.

Make sure the calculations for all of these corrections stay in file in case of audit and work with the employer to make sure the match will be calculated correctly from now on.