Employer Match Contribution Maximum based on definition of Compensation

[buckaroo]

The employer maintains a 401(k) P-S plan with a match formula of 10% upto 5% of deferrals. They contribute the match on a payroll basis. Some of the participants have contributed 5+% to the plan, but their match is less than the maximum amount of .50% of pay. Normally the document states whether or not the match is based on annual compensation or payroll compensation. The problem is that the document does not state if the match is based on annual compensation or payroll compensation. Is there a default that should be used or does the client have discretion regarding the match and possible true-up? (We are the new recordkeeper and in the past, they have not made any true-up contributions.)

Any help would be appreciated.

[Tom Poje]

If things are really unclear, I would hold you do not have a definitely determinable formula. That is a problem. I'd further hold if the document does not say the match will be made on a payroll basis, e.g. it simply says 10% of compensation up to 5% deferral, then you should use ytd numbers and a true up would be required, but that is only my opinion. But I hold that opinion because I imagine compensation is defined in the document as 'total' or 'from date of entry'.

you might check the SPD to see if there is any clarification.

[Brian Gallagher]

I would check with the folks who wrote the document. What do they say on it?

After everything is fixed up, I would amend the document to properly reflect what is wanted--payroll, monthly, quarterly, yearly matching periods.

[Guest DMK]

Along the same lines, if a company is making true-up contributions, are these normally only given to those participants still employed at the end of the year when the true-up is made (e.g, if a prototype provides for a discretionary match formula)?