Matching Contribution -True up

[Nassau]

My clients plan document currently provides that participants must contribute at least 1% of their eligible in a pay period to get the 9% company match for the pay period. They have executives that have been front loading their pay and are missing out on the full match.

Does anyone know the Pros vs Cons of offering a Matching Contribution True up? (benefits and risks - be it legal, administrative, compliance, participants,....) on the various true-up methods)

[BG5150]

Pros: front-loading is not a problem for the EEs

Cons: mid-year raises will cause a true-up

[masteff]

If the payroll system is sophisticated enough, it's possible to do a running true-up. But it's generally custom code because the calc requires knowing YTD match from the prior period and and most payroll systems don't automatically pull prior period data into working memory.

And I don't know without looking if you can have a last day rule on a true up... otherwise you have the minor risk of true ups to already distributed former employees. Then you'd want to check the plan's deminimis distribution rules (or modify it for true ups) so you don't get caught up in automatic rollovers for the one person who terminates and disapears 8 years from now.

[BG5150]

Then you'd want to check the plan's deminimis distribution rules (or modify it for true ups) so you don't get caught up in automatic rollovers for the one person who terminates and disapears 8 years from now.

Hopefully, you're not doing a true-up 8 years late!

[masteff]

Then you'd want to check the plan's deminimis distribution rules (or modify it for true ups) so you don't get caught up in automatic rollovers for the one person who terminates and disapears 8 years from now.

Hopefully, you're not doing a true-up 8 years late!

I struggled wording that! hmm... "for the one person, 8 years from now, who terminates and disappears!"

In the year 2001, I was cursing a plan decision made in mid-80's and vowed to do my best to not be cursed at by some future schmuck who had to fix my oversight.

[GMK]

If the requirement to receive the match is already based on the deferral rate in each pay period, as stated in the OP, what's to true up? Everybody who defers at least 1% in a given pay period gets the 9% match at that time, and the rest don't get the match.

If the plan doc really says that participants who defer at least 1% of eligible comp during the plan year get a match of 9% (which is a sweet deal, by the way), then add a true up feature if that's what you want.

Doing the true up once a year, after the end of the plan year, is the easiest to compute and administer ... or maybe not if you actually do have to keep track of pay amounts for pay periods when a participant didn't defer at least 1%.

The running true up, determining the trued up match amount each pay day, gets the true up to the participants' accounts faster (compared to waiting until the end of the year) and avoids extra contributions at the end of the year. But as masteff said, it complicates matters for payroll. In addition to keeping track of the YTD deferral and match totals, you may also need to track YTD 401(k) compensation. If a person is not immediately eligible to participate upon hire, then that person will have some pay that isn't part of the compensation that is eligible for deferral, and you need to know the eligible comp to get the YTD deferral and match percentages right.

[LMOC]

In relation to this same topic, can you amend a plan at the end of the year to allow a for a match trup retroactively to the beginning of the year?

[401king]

In relation to this same topic, can you amend a plan at the end of the year to allow a for a match trup retroactively to the beginning of the year?

If it's a discretionary match I see no problem with it. If it's safe harbor then you're out of luck for retro amendments.