Safe Harbor Match with dollar certain contribution

[legort69]

We have a safe harbor plan in which some participants are making dollar amount deferral elections instead of an allocation percentage of comp. Their pay fluctuates each pay period and the employer is submitting a safe match each pay period. However, the employer is not adjusting the match to that period's compensation. The SHM is the same amount each pay period just like the deferral.

The plan does not have a true up provision.

For those that contribute a dollar amount deferral election, it would appear that they should be receiving the match = to 4% (enhanced and assumed that their deferral => 4% comp) of that periods comp, regardless of the fact that the deferral amount is the same. Am I correct or am I missing something?

[QDROphile]

Your concern appears to be well founded. The match could exceed what is specified in the plan terms.

[ETA Consulting LLC]

True, you merely identified a "potential issue". Mathematically, if their deferral amount remains 'at or below' 4% of Compensation after the fluctuations, then there would be no change in the matching contribution; as it would equal to the dollar amount of the deferral. In other instances, you are correct.

All you'd need to do is the mathematical determination of the matching contribution to determine the difference. Then educate the client on why the match 'must be calculated' each pay period and not treated as a fixed amount.

Good Luck!

[401king]

IIRC, regardless of a true-up provision, if it is found that there was an error in calculating the Match, the plan administrator must "true-up" all participants. In these cases, though, it's a correction as opposed to a true-up, although the process is the same.

[BG5150]

And maybe think about amending the document for '14 to have an annual match, rather than a payroll match.

[QDROphile]

Correction vs. true-up. Good point, but a systemic problem must be corrected with the first correction of the plan faliure. A plan cannot correct the results of a systemic problem under SCP year after year.

[TPApril]

Alternate scenario: ee meets max $17,5 limit midway during the year. 4% of pay has been given each period. EE is eligible for full 4% of full year comp but it has not been met when max is met, so ee is given additional 4% on every payroll after that, even though no more 401k. In the end, match is correct with no true up necessary. is this allowable?

[GMK]

Amend the plan to match annual compensation, instead of matching per payroll comp (see post 6, above). Then when an ee hits the deferral limit, you can add the match amount each payroll or wait until the end of the year to do a one-time true up for the year, as you wish.

If you do per payroll matches after the $17.5 limit is reached, simply keep track of year-to-date deferral-eligible comp. If the deferral rate remains at or above 4%, add a match amount that brings the annual YTD match to 4% of the YTD comp. Keep in mind that persons who become eligible during the year have comp that is not eligible for deferral (from before they became eligible). In addition, depending on your plan's definition of eligible comp, there may be other comp to exclude from the YTD total for determining the YTD match.

Another thing to watch for (when you do per payroll matches) is mid-year deferral election changes, because they affect the net annual deferral rate, and therefore the annual match. Both increases and decreases in deferral rate affect the net annual percentages, so it's best to keep track of it on a YTD basis if you're doing per payroll matches, or just wait until the end of the year to do the true-up, based on the final annual deferral rate.

[TPApril]

Is the timing of depositing match generally a part of a plan document? in this particular case there is nothing in the plan document that indicates how to deposit the match or whether to do a true up.

[QDROphile]

Directly or indirectly the calcuation period is specified. If you think it is not specified, a match function that is based on compensation probably encompasses compensation for the entire year. The timing for delivery of contributions may be a differrent matter, but should be addressed in the document, if only to say that amounts may be contributed during the year. A true up may be inferred from a combination of calculation based on the entire year and ability to deliver contributions during the year. The document is inadequate if it does not cover the matters. What usually happens is that the document is based on the year and payroll-heads dictate pay period matching with resulting operational failures.

[GMK]

nothing in the plan document that indicates how to deposit the match or whether to do a true up.

You may find it is selected in the SH Match section under Contributions in the Adoption Agreement.

[TPApril]

this is an IDP, no prototype

[GMK]

Get clarification about the match calculation and timing from the person(s) who wrote the Plan Doc.

Review post 10, above.

Amend the plan, if needed, to reflect how you want to do the match.