True-up contribution

[goldtpa]

I just picked a client that used a big payroll company. When they were with the payroll company they used the per payroll method for making safe harbor matching contributions.

The problem is that the owners made their max 401k contribution within the first 3 payroll periods. Thus they only recvd the safe harbor match for those 3 payroll periods.

The question is whether to do a true-up match?

Section 3.1.2 of the Plan document prepared by this payroll company says, “matching contributions will only be made if Elective deferrals are made.”

Thus it appears that no true-up is required.

However, Section 1.1.17 states that, “Compensation shall mean wages defined in Code 3401.” However the last sentence of Section 1.1.17 also states that, “If a contribution under the plan is made on a periodic basis, compensation used to calculate the contribution shall be the compensation for the period in question.”

I believe that the plan does not explicitly define compensation as on per payroll basis to match the terms of the contribution per payroll method. Thus one could argue that a true-up should be made, based on the reference to 3401.

Any thoughts???

[Tom Poje]

there might be language elsewhere in the document. for example, one of our documents says:

Notwithstanding the foregoing, after the end of each Plan Year, the Company may make an additional Matching Contribution on behalf of each Participant in the amount of the positive difference, if any, between the Matching Contributions that would have been allocated to his Account had such contributions been determined on the basis of Compensation for the entire Plan Year and the Matching Contributions previously allocated to such Participant's Account.

this was the description from the document in regards to the match contribution.

[rcline46]

The document should specify somewhere the basis for matching contributions, normally the doc will say 'on a per pay period basis' or 'quarterly' or 'annual'. Check the document for such language and go with it.

[QDROphile]

Don't stretch to justify a true-up. First, plan interpretation is a fiduciary function. Second, failure to have clear provisions for a true up (if intended) is a symptom of rectal cranial inversion and failure to moderate contributions (if no true up is intended) is a symptom of rectal cranial inversion and greed. Health care comes at a price. In a consumer driven health care economy, price is what causes the consumer to make health care rational and efficient. Don't deprive the system of its mechanism for rationality and subsidize disease and bad health care decisions.

[Bird]

However, Section 1.1.17 states that, “Compensation shall mean wages defined in Code 3401.” However the last sentence of Section 1.1.17 also states that, “If a contribution under the plan is made on a periodic basis, compensation used to calculate the contribution shall be the compensation for the period in question.”

I think that second sentence there is your answer; how could it mean anything other than "no true-up"? Payroll companies write plans to fit their payroll systems and make their work as push-button as possible - they can't be bothered to calculate a true-up contribution.

[masteff]

My current employer has a SH plan thru our payroll provider. It has an explicit election in the adoption agreement for true-up. So look there as well as in the plan document.