Per Payroll Match

[Guest CygnusX1]

If a plan sponsor has selected in their Plan document the per payroll method in determining match, but fails to calculate the match on a per payroll basis and instead waits until year end to determine match, what are the consequences? Here are some questions:

1) Some participants will receive more match using annual compensation than if the match had been calculated on a per payroll basis. If the participants are HCEs (which seems the more likely case as those with higher comp tend to max out at the deferral limit more quickly) is this an issue?

2) Are earnings due for not actually depositing the match per payroll?

3) Would this be considered an operational failure?

[Tom Poje]

it is certainly an operational failure, as such probably correctable under self correction (making up for lost earnings)

about as close to any guidlines as to the deadline would be in 1.401(k)-3©(5)(ii) which requires such matches to be made by the last day of the following quarter. that section deals with safe harbor match, but I would hold similar logic for calculating gains would apply to a regular match (absence any other guidelines)

by the way, I could read that pargraph to say that if it was a safe harbor match, in additional to everything else, plan would have to run an ACP test as well.

[Guest CygnusX1]

Thank you for the reply!

[goldtpa]

Hate to bring up this old thread again, however I have the same problem with a twist.

Plan doc says match to be made on a percentage of comp on a per payroll basis. However like the old thread the client makes the match annually.

The twist is this, they have calculated the match on a percentage of the deferral since the plan started which was 2002.

The second twist, is that the plan is a "check the box" prototype and no formula was checked. The matching section was left blank.

Can you self correct and reallocate all of the matching contributions?

I would assume that you would have to provide interest to those employees who might have been shorted. Do you have to file a 5330?

I would tend to think that this is not an insignificant operational error, as some employees have quit and were already paid out. Thus VCP might be the best method for correction?

Any thoughts?

[Guest Pensions in Paradise]

What does the SPD say about the matching formula? It has to say something.....

As far as the correction, yes I would go VCP submission. Calculating four years of per payroll match is going to be fun.

[wsp]

....Calculating four years of per payroll match is going to be fun.

This one will be interesting to follow....

Unfortunately for the client (well, since it's their fault I guess it's not such a bad thing) the cost, in terms of time and expense, of this correction will dwarf match differential. Assuming of course that the SPD provides a formula. I'm putting my money on 'discretionary'.

[Guest Ken C]

Ok, I may be way out in left field here but just because the plan document calls for the match to be calculated on a per payroll basis is there an obligation to deposit it on a per payroll basis. I realize in most cases that is the intention - to avoid a true up at the end of the year - but is it required?? I

[goldtpa]

wsp you win the prize. The spd only refers to a match, without giving the formula. The question now is whether the failure to follow the doc is a prohibited transaction. The reasoning is that some employees got less of a match than they were supposed to get under the plan. Therefore the employer technically had use of the money that should have belonged to some of the employees. Plus the employees now have lost the use of that money over the last few years, thus a PT.

What do you guys thinks? Thanks by the way for all of your input. That's what I love about this board.