Safe Harbor Match Miscalculated on Payroll by Payroll Basis?

[kwalified]

Let's say a participant deferred the max into a 2011 calendar year plan prior to the end of the year. For example $16500 was deferred on 25K in comp through June 30, so the part should receive a basic SH match of $1000. Let's say that the P.S. only deposited $900. The $100 shortage was not discovered until after 3/31/12, is the P.S. still allowed to put in the $100?

Also, let's say the participant earned $50K for the year, the P.S. should deduct the $16500 throughout the year which would have afforded the participant a SH match of $2000 instead of $1000, correct?

This is how I am interpreting Treas Reg 1.401(k)-3©(5)(ii)

[ETA Consulting LLC]

Let's say a participant deferred the max into a 2011 calendar year plan prior to the end of the year. For example $16500 was deferred on 25K in comp through June 30, so the part should receive a basic SH match of $1000. Let's say that the P.S. only deposited $900. The $100 shortage was not discovered until after 3/31/12, is the P.S. still allowed to put in the $100?

Sure. You'd alway make the deposit for the amount the Participant was entitled to under the terms of the plan. Be sure to maintain documentation since it is made after the fact.

Also, let's say the participant earned $50K for the year, the P.S. should deduct the $16500 throughout the year which would have afforded the participant a SH match of $2000 instead of $1000, correct?

This is how I am interpreting Treas Reg 1.401(k)-3©(5)(ii)

Correct, depending on the payrolls for which actual deferrals were made. When you give a payroll period match, you're only giving contributions during the periods for which deferrals are withheld from the employee's pay. In such plan design, it would behoove the employee to ensure he doesn't reach the 402(g) limit until the last payroll of the year in order to receive the SHMAC on his entire annual salary.

Good Luck!

[austin3515]

If it's a payperiod match calculation, then you can't look at plan year figures. You must look at each pay-period individually. You can only deposit the shortfall if the match was miscalculated. Perhaps the participant didn't start deferring until February, or perhaps no deferrals were taken out on a bonus. In those situations, there would be comp that was [edit: CORRECTLY] not matched.

[K2retire]

Also, let's say the participant earned $50K for the year, the P.S. should deduct the $16500 throughout the year which would have afforded the participant a SH match of $2000 instead of $1000, correct?

That depends on the participant's election. If they said defer $16,500 for the year, it should be evenly spread. If they said defer $3,000 per month, you need to take $3,000 per month until the limit is reached.

[Bird]

I guess we are supposed to assume that the plan really says that the match is calc'd separately for each pay period, and not that it is being done that way just because that's how the payroll company does things. If so, I agree with the prior answers. But I suspect that this is widely mis-applied.

(ii) Periodic matching contributions. The safe harbor matching contribution requirement of this paragraph © will not fail to be satisfied merely because the plan provides that safe harbor matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that safe harbor matching contributions with respect to any elective contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter.

[austin3515]

The participants election should be on a pay-period level not a plan year level. So if the participant says "I want to do 16500 this year" the plan sponsor needs to say "I need more information--how much do you want to do every pay-period." This is not something one should make assumptions about. Assuming incorrectly would make an... welll, you know the rest...

[masteff]

Actually, the OP's first sentence says the part hit the max on 6/30 at which point in time the part had $25K comp for which the 3*1+2*1/2 match in theory would be $1K.

But the same statements made above about a full year could be applied to the half year.

Basically, unless the plan has a true up then you never 2nd guess the pay period match unless an individual pay period is in fact wrong. You can't assume on 6/30 that the $16,500 was deferred evenly. You have to recreate each pay period before you can say the participant didn't get the right match. The participant may have changed their deferral on any number of occassions. One single pay period with less than 5% deferral will result in less than maximum match.

[austin3515]

Actually, the OP's first sentence says the part hit the max on 6/30 at which point in time the part had $25K comp for which the 3*1+2*1/2 match in theory would be $1K.

But the same statements made above about a full year could be applied to the half year.

Basically, unless the plan has a true up then you never 2nd guess the pay period match unless an individual pay period is in fact wrong. You can't assume on 6/30 that the $16,500 was deferred evenly. You have to recreate each pay period before you can say the participant didn't get the right match. The participant may have changed their deferral on any number of occassions. One single pay period with less than 5% deferral will result in less than maximum match.

In other words, "I agree with Austin"

[masteff]

In other words, "I agree with Austin"

I agree that I agree with Austin!

[K2retire]

Related question: Assume the document specifies that the match is per payroll period, and the employer pays a bonus on the same date as a regular pay check, but in a separate check. There is no deferral from the bonus check, per the participant's request.

Is the match for that pay period caculcated separately for each of the two checks on that date? Or is it calculated on the total amount because it is one payroll period, even though it is two checks?

[ETA Consulting LLC]

Related question: Assume the document specifies that the match is per payroll period, and the employer pays a bonus on the same date as a regular pay check, but in a separate check. There is no deferral from the bonus check, per the participant's request.

Is the match for that pay period caculcated separately for each of the two checks on that date? Or is it calculated on the total amount because it is one payroll period, even though it is two checks?

Good question and is likely an interpretational issue with the plan's document. At least one plan I remembered had language identifying that matching contributions will be made for only those payrolls during which deferrals were withheld. This would clearly mean that no match would be given on the bonus compensation paid 'during or on the last day of' the payroll period unless deferrals were actually withheld from the bonus check.

Without such explicit language, different employers (on the same document) may end up doing it differently.

Good Luck!

[austin3515]

Unless the document excludes bonus, I would say that it is included in the calculation.

[GMK]

I agree with Austin.

[K2retire]

I like that interpretation. The document does not exclude bonuses -- and I suspect that the employer was supposed to withhold deferrals from the bonus. But for now I'm assuming that the participants requested no withholding from the bonus. One of them change his percentage that same payroll period, so we know they documented something on that date.

[BG5150]

I would say that if two paychecks were issued, you could make the case there were two payrolls. They just happened to coincide.

[austin3515]

I disagree, because the documents usually refer to a "pay-period" as opposed to a particular "pay-check."

[BG5150]

I disagree, because the documents usually refer to a "pay-period" as opposed to a particular "pay-check."

Paycheck 1: pay period--July 1 to July 15

Paycheck 2: pay period--bonus for 2012

Worth a shot?

[K2retire]

It sounds like there is some wiggle room on this part of it. I think they want to let them keep as much of the overage as possible.

[austin3515]

Sometimes I'm amazed when a question that should be very very simple ends up being very complicated.

I think the most conservative approach would be to pay bonuses on a date other than pay-date if you don't want to include comp. Better make sure the participant signs an election though saying no 401k from bonus.