Change to Employer contributions formula during year

[jaxon1225]

Hi. Our plan document says that we provide our employer match and non-elective contributions on a per payroll basis, BUT, we do not match our employee catch-up contributions until year-end. (our system allows for employees to have two separate employee contributions withheld on a payroll basis- regular employee deferrals and catch-up deferrals).

We obviously do a true-up contribution at year-end to make sure that everyone received the appropriate match and non-elective contributions, but how would we do the true-up contribution if we changed our match formula mid-year? (for example, the current matching formula is 50% up to 6% of compensation and lets say it was to be changed during the year to 50% up to 4%)

Would we do two separate true-ups based on the two different formulas in effect during the two portions of the year? Thank you!

[BG5150]

1. You don't have a "catch-up" contribution until someone hits an applicable limit. The limits are: a plan limit (ex. the plan only allows for deferrals up to 15% of compensation), 415 limit, limit due to ADP testing, 402(g) limit.

You could run into a situation where someone intends on making the full $17,500 + another $5,500 during the year. So, they decide to do $1,458 "regular" and $458 "catchup" in deferrals every month. However, what if they quit or get fired after, say, April. That would be only $5,832 regular and $1,832 catchup for a total of $7,664. I doubt that would hit any of the applicable limits, so ALL of it is "regular" 401(k).

2. I doubt your document states when you are contributing the match, but rather when and how it's calculated. If you are calculating using a payroll-by-payroll match, then no true-up should be necessary; you are doing 26 (or 24 or 52) discrete calculations that all stand alone. The only time a "true-up" would/should be necessary is if something got missed.

So, with a payroll based match, it won't matter how many times you change the match during the year. Each paycheck is independent of the others.

3. Does the document really say you are calculating the nonelective piece every payroll? Are there no allocation conditions?