True-up when employer contributions suspended midyear

[jaxon1225]

Background:

The Plan Document allows for a discretionary employer match and discretionary non-elective contribution, both on a per pay period basis, and it also says that a true-up will be done at year-end

Questions:

1. Would the document need to be amended if the company decides to suspend the employer contributions mid-year? I seems like that falls under the discretionary piece.

2. If the plan dues a true-up at year-end and suspends the employer contributions mid-year, should the document address how the true-up would then be handled, or is this an administrative issue?

3. How would the true-up be calculated if the contributions were stopped mid-year.

Thanks for any information you may be able to offer!

[ETA Consulting LLC]

The 'true-up' would be calculated through the date the employer amends the plan to suspend the contributions.

Good Luck!

[Bird]

The 'true-up' would be calculated through the date the employer amends the plan to suspend the contributions.

Good Luck!

But they are discretionary. I'm having a hard time understanding how a document could say that contributions are made on a payroll basis and there is a true up; the two are mutually exclusive to me. I guess it means that they are deposited on a payroll basis and not calculated on a payroll basis. I would think the document should be clarified (amended) if the answers are not evident from reading it.

[Jim Chad]

Bird, I agree with you.

[jaxon1225]

After slowly reading over the employer contribution sections again I realized that I did a poor job of explaining it. The employer match and the non-elective contributions are on a per payroll basis, but, catch-up deferrals are not matched until year-end. The catch-up deferrals and any other eligible employee contributions for which employer match was not provided during the year are trued up at year-end. Hopefully this makes a little more sense.

Since the plan does a true-up at year-end, if the Plan suspends the employer contributions mid-year, should the document address how the true-up would then be handled, or is this an administrative issue? (meaning does the document need to say that if employer contributions are suspended mid-year, then the True-up will be based on the compensation/employee deferrals through the date the employer contributions were suspended? Thanks again!

[Bird]

Well, I'm not quite sure why there would be a distinction for catch-up contributions if you are going to match them anyway (and you don't necessarily know what are catch-up when they go in* - sounds like a payroll company mentality), but I would say that any deferrals made before the match was suspended should be trued up (and it doesn't need an amendment).

*In fact it's likely that they are misclassified - if someone elects to contribute $23,000 in 2013, spread throughout the year, 24% of each contribution is not catch-up. All are regular until the $17,500 limit is reached.