Safe Harbor Match Calculation Per Payroll Period

[CAR]

A 401(k) Safe Harbor Plan has a Basic Safe Harbor Match to be calculated each payroll period and the plan compensation to be considered is wages, tips and other compensation on Form W-2 including salary deferrals. The employer contributes the match to the plan on a quarterly basis. At year end the employer uses each participant's W-2 Box 5 annual compensation to compute the safe harbor match amount for the plan year then he contributes the final quarter safe harbor match based on the W-2 box 5 compensation for the year. Is there anything in this scenario that would be in conflict with the plan's match and/or compensation specifications?

[Guest A_Dude]

If the plan document says the match is to be made/calculated each payroll period, the match must be made each payroll. If the employer is matching on a quarterly basis (which is not per payroll period) they should be using the end of year or "true-up" for the timing of when the match contribution is made. You also have to be careful and make sure that there is nothing added back in for the definition of W2 comp.

[CAR]

I am a little confused. It is my understanding that the match can be determined per payroll period according to their plan specifications however it does not have to be deposited the same as deferral contributions, i.e. the employer can wait until the end of the quarter to deposit the match. If that is not allowable can you refer me to the regulation that specifies the date the match is due to the plan?

[GMK]

Deferrals must be deposited (segregated from the company's assets) promptly after being withheld, but for other contributions, see the "Timing of other contributions" section of this:

http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide---You-have-not-timely-deposited-employee-elective-deferrals

As long as you use the correct compensation, and the plan says you can do a true up, you appear to be OK.

[John Feldt ERPA CPC QPA]

From the OP it does not sound like the plan document allows a true-up. If the plan's document states the calculation of the match is done on a payroll-by-payroll basis, then you must not true-up at the end of the year. In that case the match, as calculated, would need to be deposited at least quarterly equal to the sum each of the payroll-by-payroll matches calculated for that quarter.

This can cause problems for HCEs that were not provided an explanation of how the match gets calculated and, thinking they'll get the whole match anyway, make their entire deferral for the year from just a couple of paychecks (or from a bonus).

[BG5150]

Deferrals must be deposited (segregated from the company's assets) promptly after being withheld, but for other contributions, see the "Timing of other contributions" section of this:

http://www.irs.gov/Retirement-Plans/401(k)-Plan-Fix-It-Guide---You-have-not-timely-deposited-employee-elective-deferrals

As long as you use the correct compensation, and the plan says you can do a true up, you appear to be OK.

One thing missing from that is:

If the plan is utilizing a SH Match, AND the calculation is per payroll, the match for any particular quarter must be sent to the trust no later than the end of the quarter following.

From 1.401(k)-3©(5)(ii)

(ii) Periodic matching contributions. The safe harbor matching contribution requirement of this paragraph © will not fail to be satisfied merely because the plan provides that safe harbor matching contributions will be made separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or quarter of a plan year) taken into account under the plan for the plan year, provided that safe harbor matching contributions with respect to any elective contributions made during a plan year quarter are contributed to the plan by the last day of the immediately following plan year quarter.

[401king]

...contributes the final quarter safe harbor match based on the W-2 box 5 compensation for the year.

Sounds like they're doing their own true-up at the end of the year. It's only an issue if the document doesn't provide for a true-up. Doc should specify true-up or no true-up.

[CAR]

Their document is an adoption of a Sungard/Corbel EGTRRA 401(k) Prototype Plan. I do not see an option in the AA to allow the employer to true-up the safe harbor match contribution. I also am not finding anything in the plan document regarding a "true-up" option. Maybe I am just not looking in the right plan document section. I either need the plan documentation or a regulation site to explain to the employer that they cannot "true-up" their safe harbor match contribution without violating the plan provisions or the regulations regarding all plan match contributions determined on a per payroll period basis.

[WCC]

I don't believe you will find "true up" wording in that doc (that is the doc we use). The documentation is the adoption agreement which states the match is calculated on a pay period basis, plan year basis etc. If pay period is selected, then the match cannot be "trued up" at the end of the year.

[masteff]

Annual comp is the default. Find something that shows they affirmatively elected to use pay period comp for match. It might be related to the definition of comp or an option under the match formula. Does anything in the AA clearly specify a pay period match based on pay period comp?

Q&A-2 in IRS Notice 2000-3 (emphasis added):
Q-2. Can a 401k safe harbor plan match elective and employee contributions on a payroll-by-payroll basis (instead of on an annual basis) without making additional contributions at the end of the year to take into account the total amount of an employee's compensation for the plan year?

A-2. Notwithstanding section VII.A. (or any other provision) of Notice 98-52, the requirements of sections V.B.1. and VI.B. of Notice 98-52 that relate to matching contributions may be met for a plan year by meeting such requirements either (1) with respect to the plan year as a whole, or (2) if the plan so provides, separately with respect to each payroll period (or with respect to all payroll periods ending with or within each month or plan-year quarter) taken into account under the arrangement for the plan year (the "payroll period method"). If the payroll period method is used, however, matching contributions with respect to elective or employee contributions made during a plan year quarter beginning after May 1, 2000 must be contributed to the plan by the last day of the following plan year quarter. Accordingly, in the case of a calendar year plan that uses the payroll period method, matching contributions with respect to elective or employee contributions made during the calendar quarter beginning July 1, 2000, must be contributed to the plan by December 31, 2000. The payroll period method applies only for purposes of satisfying the ADP safe harbor matching contribution requirements of section 401k(12) (section V.B.1. of Notice 98-52) and the ACP safe harbor matching contribution requirements of section 401(m)(11) (section VI.B. of Notice 98-52).