Safe Harbor Plans - True Up

[Guest Becki625]

Anyone who has a 401(k)/401(m) safe harbor plan and is matching on a per pay period basis - do you conduct a true-up at the end of the year or do you have your system set up to continue to provide a match for a participant that reaches the IRS deferral limit before year end?

I ask because I have gotten two different opinions on this and am curious what the practice has been for those with safe-harbor plans. I know that there was a notice that went out in 2000 that stated that you could eliminate the need to true-up safe harbor plans when matching on a pay period basis, but I was further told that the 2004 regs did not state this.

The final regulations provide that matching contributions are to be a percentage of “safe harbor compensation,” a newly added definition that provides that compensation is the participant’s compensation for the plan year - not per pay period basis.

Comments would be greatly appreciated.

Thank you

[austin3515]

If match is pay-as you go, calculatated every pay-period (or month or quarter) then you do NOT need a true-up as long as the plan document provides for the calculation each pay period (or month or quarter). Note that the the contriubtions need to be deposited (I believe) by the quarter folowing the quarter to which they relate (ONLY if they are calculated based on pay-period method).

If the doucment is not specific, then generally you need the true-up (i.e., annual is assumed if nothing else is excplicitly stated).

[Archimage]

Key thing is to check your plan document. Some give an option in the adoption agreement and some don't.

[Guest Becki625]

The plan document does say the match is on a per pay period basis, but the definition of compensation is annual. That appears to be where the rub is. And when someone hits the deferral before the end of the year, the plan in essence stops matching money because the participant is no longer contributing.

[austin3515]

The fact that the definition of comp implies annual should not be a "rub." The plan should explicitly provide that the match is calculated based on pay-period deferrals and pay-period compensation.

The fact that somehwere else in the document, comp. is defined as annual, should not render another part of the document null and void.

Tell your co-workers not to think so hard

[Guest Becki625]

Mr. Powers,

Thank you very much!!

[austin3515]

Please, call me Austin

[QDROphile]

The key word is "explicitly." If you have a sloppy plan document that does not define compensation based on pay period to match the terms of the contribution per pay period, you are lookg at a true up. If the match is a function of compensation and compensation is defined as compensation for the year, I think that controls despite a provision that allows periodic contributions.