Safe Harbor Matching

[Guest Rob]

A while back, ndt123 asked:

It appears that the notice requires the match to be calculated on annual contributions and annual compensation. For plans that match on pay period by pay period basis, this would require a "true up" match at the close of the year.

Any thoughts?

I didn't see any responses. Does anyone have any comments? Do you have to top-up all employees or just NHCEs? What about if a participant front-loads deferrals?

[MWeddell]

As written, Notice 98-52 clearly requires that contributions be made on a plan year to date basis or that a true-up contribution be done at the end of the plan year for plans that make matching contributions throughout the plan year. The definitions clearly define matching rate on an annual basis.

The true-up is only required for nonhighly compensated employees. Yes, it applies to employees who front-load their contributions early in the plan year.

While employers who intend to make a safe harbor match should be advised that they'll likely need to true up the contributions at the end of the year, it's not a closed issue. The IRS will collect comments on the guidance and it's not even issued in the form of proposed regulations yet. It's possible that the final rules will differ from Notice 98-52. On the other hand, if employers amend their documents now, it'll be hard to retroactively remove the true-up contributions. Employers who don't want to make the true-up matching contributions might consider waiting until we're much closer to the end of the 1999 plan year before they amend their documents to comply with Notice 98-52.