Compensation and Safe Harbor Match

[Susan S.]

Our documents typically state that the safe harbor matching contribution and compensation will be determined for the entire plan year. However, I have come across a document that says that the safe harbor match will be calculated based on compensation and deferrals on a payroll period basis.

I assume this means that the match will be deposited on a payroll period basis, but may need to be trued up at year end based on annual compensation. The employer is interpreting this to mean that if a participant defers $17,000 in a single pay period in January, only the compensation for that one pay period is considered in the match calculation and the compensation for the remainder of the year is disregarded. Surely this can't be correct or the employer would need to give us compensation for every person for every payroll period. How do I explain this to the client? The document language doesn't spell it out clearly.

[ETA Consulting LLC]

Typically, a payroll period match means that you are applying the formula to only those deferrals (and compensation) made (and paid) during that payroll period. There is no true. When the period is "plan year", then you "may" make the calculation on each payroll, but a true-up at year end would be necessary. So, you either have an annual calculation or you do not. You should not impose one when the document isn't written to provide for it.

Good Luck!

[BG5150]

In the case of the OP: the match is CALCULATED on a payroll basis. Unlike deferrals, it doesn't have to be DEPOSITED every paycheck. it can be, though.

For example, if my pay is $5,000 a month and I defer $500 a month for the first six months only, I will only be getting $1,200 in match. (200/mo x 6 mos). If it was calculated annually, I would have a 5% deferral rate (3,000 / 60,000), and be eligible for the full 4% match of $2,400 (resulting in a 1,200 true-up)

However, if the safe harbor match is calculated on a payroll basis, it must be deposited no later than the end of the calendar quarter following those payrolls. So, at minimum, you have 4 deposits a year. If it is calculated annually, you can deposit it any time during the year, and a true-up due before the end of the year following.

[K2retire]

Some documents spell out whether or not there is a true up. Others leave it up to the employer's discretion each year. Check the document carefully.

[Susan S.]

So if there was a document coding error and the employer intended to calculate on an annual basis (and has been operating that way for years) but the document says it is to be calculated per payroll period, what is the best method of correction? Can an amendment be prepared stating that there was a drafting error?