Truing Up Safe Harbor Match

[DP]

I have a Safe Harbor 401k Plan with the Basic SH Match. The document says the match is calculated on a pay period basis with the true-up being made quarterly.

If a participant starts his 401k on 9/1/04, when I calculate the true-up, do I use the entire quarter's compensation, or compensation from when the 401k started on 9/1/04?

I've thought so long about this that I have myself confused. Thanks.

[Archimage]

My interpretation would be that every quarter you would true-up YTD. However, I could understand if you interpreted it to mean just the comp and contributions for that given qtr.

I would recommend asking your document vendor what the intent was.

[austin3515]

If you don't true up on a YTD basis each quarter, your defeating the purpose of the true up in the first place. I.e, the biggest issue is people maxing out before year end at the 402(g) limit. If they max out in the 4th quarter (as most would) and you do the true-up for just the 4th quarter, you're gonna leave a lot on the table.

[Archimage]

Austin, I agree with you 100%. However, there are some clients out there that might want to true-up just for the quarter. Why? I have no idea. Therefore the document providers may be putting this language in there to satisfy their clients.

[Bird]

I don't understand the question. Maybe it's just me, but if "the match is calculated on a pay period basis" then what's to true up?

I remember that there's a quarterly *deposit* requirement for pay period match calcs, but that's a different issue.

[Archimage]

If the participant's deferral % did not change throughout the year, then you would not have anything to change. However, if a participant changed their deferral throughout the year, your year-end deferral % (annual deferral amount/annual compensation) would not equal what you have matched on. Therefore, the document says you have to true-up this number in order to get the correct annual number.

I hope that makes sense.

[J2D2]

I'm with Bird. The plan language seems contradictory. On one hand, it says to calculate the match on a pay period basis. This provision, standing alone, shouldn't require any true-up. However, the document goes one (confusing) step further and requires a true-up each quarter. Hopefully, the plan also states the basis for the true-up, as some other posters are noting. Without some further explanation, there should be nothing to true-up, if the plan states that the match is calculated on a pay period basis.

[austin3515]

This post was responding to the fact the Plan does require a true-up each quarter...

I think we all agree that if the Plan says match on a pay period basis with no true-up, then you do no true-up...

[Archimage]

It is not uncommon for a plan document to require a true-up contribution on an annual basis for plans that are matching on a payroll by payroll basis.

[Bird]

I read the question literally, and J2D2 understood what I meant. To clarify:

If the document says the match is "calculated" on a pay period basis, there should be no true up. The match is whatever was deposited, assuming those calcs were done correctly.

I think most people read the question NOT as it was written...

"The document says the match is calculated on a pay period basis with the true-up being made quarterly."

...but interpreted it is...

"The match is deposited on a pay period basis with the true-up being made quarterly."

I find a quarterly true-up kind of curious.

Does this make more sense? Am I being obtuse?