Calculating 401k Match

[four01kman]

I always have calculated the employer match by dividing the employee's 401k contributions for the period by the employee's pay for the period to two decimals. I'm not sure why I have been doing it that way, but I would appreciate comments.

[ETA Consulting LLC]

I always have calculated the employer match by dividing the employee's 401k contributions for the period by the employee's pay for the period to two decimals. I'm not sure why I have been doing it that way, but I would appreciate comments.

Well that is one way a document may allow for match to be calculated (typically referred to as a payroll period match). Under all instances, you'd still have to account for ensuring you do not provide matching contributions on Compensation Exceeding the 401(a)(17) limit.

Good Luck!

[GMK]

If you're saying that you round the percentage to 2 decimal places, for example, deferral/pay = 0.04454 becomes 4.45%, then you are probably never off even a penny, compared to using all the decimal places in the deferral to pay ratio.

If you are saying that 0.04454 becomes 0.04 (4%), then that will likely reduce the match. Similarly, in this case, 0.0451 becomes 5%, and you increase the match.

Consistency is important, so I'd probably continue using whatever you've been doing, or make a one time change to "improve" the procedure if that seems appropriate. Once upon a time, more decimal places was more work. Now, it's easier to let the computer use all its decimal places and round the final match amount.