Interest on True-Up?

[J2D2]

Plan calls for employer match to be deposited on a per payroll basis with year-end true-up. Former attorney apparently told plan sponsor that it was required to add interest to the year-end true-up contribution. No one can find anything in writing from the attorney, nor did anyone note the reasons that the attorney may have given as the basis for this opinion. I can find no basis for requiring interest, but, admittedly have not researched the issue to death.

Any thoughts on this issue? Any cites would also be most welcome.

[QDROphile]

Not true. Usually you can't find cites for rules that don't exist.

[Bird]

I agree with QDROphile.

But I question the assertion that the "Plan calls for employer match to be deposited on a per payroll basis with year-end true-up." I find it odd that the plan would require per-payroll matches AND require true-ups. Maybe it doesn't matter but it doesn't make much sense to me, which makes me think that there's some confusion about what the plan really says.

[WDIK]

Isn't that what the true-up is for?

[Bird]

Isn't that what the true-up is for?

Yeah but why does the plan call for p/r deposits at all if they're going to true up anyway? It might be company practice to make p/r deposits but it doesn't make sense to me that the plan should be saying anything about p/r deposits unless you're NOT going to true up.

Unless I'm missing something which is always a possibility.

[J2D2]

Thanks for the comments. Bird, I'll go back and check the plan provisions; it may be that it is siimply company practice to deposit the match on a per payroll basis. WDIK, I have no problem with the reason for the true-up contribution; it's the addition of interest that concerns me.

[WDIK]

With respect to the interest issue, I agree with Bird who agrees with QDROphile.

[wsp]

If the document calls for contributions to be made on a payroll by payroll basis but the plan comp is annual compensation doesn't that automatically force a true-up? Plan could call for the deposits on a payroll basis for cash flow issues or if you have an employee base that has a fundamental distrust of management (ie manufacturing or the such). Such a mechanism would relieve some concerns...Then again I could be more off base.

But I too agree..no interest.

[MARYMM]

If the document calls for contributions to be made on a payroll by payroll basis but the plan comp is annual compensation doesn't that automatically force a true-up? Plan could call for the deposits on a payroll basis for cash flow issues or if you have an employee base that has a fundamental distrust of management (ie manufacturing or the such). Such a mechanism would relieve some concerns...Then again I could be more off base.

But I too agree..no interest.

Sounds like our Plan - same exact provisions - deposits per pay period plus a true up at year end

[Guest dbvail]

For what it's worth, I thought the true-up mechanics were to handle the issue of ann employee who deferred the 402(g) max early in the year by deferring a very high percent of pay. So after earning, for example, $45,000 they had already deferred $15,000, by say March 1. The SH match up to then would have been 4% of the $45k, or $1,800. The "true-up' total at year end, assuming income of $220,000, would be $8,800. So the employer would add $7,000 to true-up the match.

For regular folks who defer at a more modest and level rate, this is not an issue.

But like all other posters, I agree, no interest is due as the true-up doesn't happen until the end of year, plus it's not in the document to demand it, and I find no cites.

[Dan]

You may need to add earnings if the the contribution isn't made timely. Could that be what the attorney meant?

As for why PR match and true up, the example dbvall gives is a good one. And consider some employers like to manage their cash flow with some consistency.

[Guest Rachael L.]

Adding earning to untimely contributions normally deals with employee contributions not employer contributions.

[BG5150]

Plus, how can you add earnings to a true-up? From which date would apply those earnings?

Since the plan (we think) is using full-year comp, it doesn't have to make ANY match until after the plan year. If the plan did that, there would be no earnings calculation (provided the deposit was made timely). if you think about it, making the match at the end of the year is just one giant true-up.

Making a match on a per-payroll basis just makes sense for a lot of companies. This way they don't have to write one huge check in January.

So, my without a doubt, take-it-to-the-bank, I guarantee it or your money back, swear on my (insert family member here)'s grave that there is not interest calculation on true-ups.

Ok, I'm not that postive, but I'm pretty sure.

[mschwechter]

As far as I am concerned, the Tru Up is the same as an annul match calculated at the end of the year, and the timing of the deposit is the same as any other er contribution, by the time the tax retrun is due plus extensions. If the er files his return on 9/15, that is when the deposit is due, w/o interest