Safe Harbor "True Up" for non-participants?

[Guest Sleigher]

Our plan document states that our matching contributions are based upon W-2 compensation.

However our match (4%) is being calculated by weekly pay period.

I've suggested that we perform a "True up" for all that participate in the plan but our "administrator" is telling me that a true up would require the company to provide a match (4% of annual compensation) to any employee who had contributed any money to their 401K plan.

In other words:

Employee A (earning 100K) contributes $16,500. to their 401K during the first twenty weeks of the year. The current system "matches" their deferral with $1538. A True up would add $2462 totaling to a match of $4000.

Employee B (earning 100K) contributes $100 the first week of the year and decides not to save anymore. The current system matches their deferral with $77.00. According to our administrator the true up would match and add $3923. Even though Employee B only contributed $100.

Could this be true?

Thanks in advance.

P

[Bill Presson]

You might want to talk to another "administrator". We're accepting new clients.

[Guest Sieve]

No, it could not. So, feel free to fire your TPA and hire Bill--or else give too much to your employees.

Not wanting to keep a potential client from Bill, I'd just point out to Sleigher that a match is a match--i.e., you only match as per the plan formula based on actual deferrals. "4% of compensation" is not a match formula, but "dollar for dollar on deferrals up to 4% of compensation" is a match formula. In the latter case, the individual deferring $100 would, in a true-up, have deferred only 0.1% of compensation, so the match would be $100, while the individual deferring $16,500 would have deferred 16.5%, and a true-up match would be $4,000. The match is not a blanket 4% of compensation if the individual does not defer 4% or more of compensation.

[Below Ground]

Sieve is 100% correct. The Safe Harbor Match Formula should be considered the lesser of dollar for dollar, or 4% of compensation. (Depending upon the document "compensation" can mean pay for the payroll period or the year.) You may wish to check again with your TPA. Perhaps you heard wrong? If they still say provide 4% of pay when the person did not defer 4%, get a new service. Match means related to the deferral. The 4% is a maximum limit. Good luck.

[RCK]

In case you need more support.

I work for plan sponsor with a large (multibillion dollar) plan. It is a Safe Harbor with weekly matches and an annual true-up. It operates as you would anticipate--the true-up match is calculated as if the whole year was a single paycheck, adn the person contributing $100 out of $100,000 would receive $100.

You do have to be sure that the amended plan language accurately describes what you would like to do.

I just saw one of those emails that occassionally makes the rounds. This one had a bunch of sayings, includign this one: "No" simply means begin again at one level higher. That may apply here.

[Guest Sieve]

For some reason, I cannot find in the 401(m) regs that matching contributions can be made on a payroll basis (they are in the SH regs--1.401(k)-©(5)(ii)). Are they anywhere in 1.401(m)?

[Guest Sleigher]

For some reason, I cannot find in the 401(m) regs that matching contributions can be made on a payroll basis (they are in the SH regs--1.401(k)-©(5)(ii)). Are they anywhere in 1.401(m)?

Thank you very much for your responses.

I know that asking a "legal" question may not be appropriate but I'll ask anyway.

If our plan document definition of compensation is "In general, the amount of your earnings from your Employer taken into account under the Plan is all earnings reported to you on Form W-2."

Aren't we legally required to True Up at the end of the year?

I don't see how you can do a match weekly if the match is based upon compensation reported on your W-2.

Thanks again.

P

[GMK]

Check what your plan says about the match. Generally, the term "match" means how much the employer contributes to match what you defer, not to match how much you make.

For example, if the match is 50% and you defer 4% of your compensation, the employer will contribute a matching amount of 2% (up to the limits imposed by the plan and the law).

If you do not defer any of your compensation to the plan, then the employer will match your deferral by contributing nothing also (4% of nothing = nothing).

[Guest Sleigher]

Check what your plan says about the match. Generally, the term "match" means how much the employer contributes to match what you defer, not to match how much you make.

For example, if the match is 50% and you defer 4% of your compensation, the employer will contribute a matching amount of 2% (up to the limits imposed by the plan and the law).

If you do not defer any of your compensation to the plan, then the employer will match your deferral by contributing nothing also (4% of nothing = nothing).

Perhaps I should have been more clear before.

The exact wording is: "Your Employer will make a safe harbor matching contribution of 100% on your deferrals up to 4% of your compensation."

[K2retire]

Perhaps I should have been more clear before.

The exact wording is: "Your Employer will make a safe harbor matching contribution of 100% on your deferrals up to 4% of your compensation."

There should be another blank at the end of that sentence that specifies if the match is made per payroll period, monthly, quarterly, for the Plan Year or some other choice. That is what determines whether or not you have a true up.