Quarterly Match, Last Day of Quarter, and True-Up

[Steve Waddo]

Plan provides for a 3% non-safe harbor match. Participant must be employed on the last day of the quarter to be eligible for the allocation. Also, plan provides for a quarterly true-up. The question is how should the true-up be calculated with this design? Should the true-up only be calculated for the quarter in which a deferral is made or should the compensation for quarters where no match is contributed also be considered for a true-up? The individually designed document is silent.

Example: First quarter Joe has compensation of $40,000 and contributes $17,500. Match contribution is $1,200. Second quarter Joe has compensation of $40,000 and no deferral/match. Should a true-up be calculated on $80,000? What if he terminates during second quarter therefore making him ineligible for the match since he was not employed on the last day of the quarter? Is that a game changer?

Any insight would be greatly appreciated!

[Lou S.]

It should be addressed in the Plan Document defining compensation but if it is not, I would error on the side of the participant truing up match YTD if employed at the end of the quarter.

Alternatively I'd write up admin procedures that address specifically what compensation is used for what period of the true up calc for the client to sign off on.

[ESOP Guy]

I would seek an to amend the plan to clear this up based on past practice.

I would add that all plan document give the plan administrator the power to interpret the plan in a reasonable and non-discriminatory manner if the document is unclear or silent. So the plan administrator could interpret the document and set precedence if this is the first time it comes up. At which time I agree with Lou S I would make sure the interpretation is documented and followed going forward.