Year End True-up - % of total match

[Ryan L]

Hello,

We are implementing a 401k match with year end true up next year.  For those of you with this in place, what percentage of overall match happens during the year vs. the year end true-up?   I realize this will vary from company to company but looking for some general numbers.

Thanks,

Ryan

[Mr Bagwell]

Are you looking for an analysis of how many plans are not true up vs plans that are true up?

[Ryan L]

Mr Bagwell:  To clarify my question:   For plans that do offer a year-end true up, what percentage of the overall  annual company match happens at the year-end true up?   

Thanks for asking!

[Belgarath]

We've never tracked that percentage - but I can tell you that the true-up is a VERY small percentage - if you forced me to guess, I'd say maybe 2%. That's just a guess, but it most certainly is a very small percentage. At least for us - others may have a different experience.

[Mr Bagwell]

Ok, I understand.  And the answer is it depends. 

The true up is really coming from employees that defer the max early, and or change their deferral percentages at various times through out the year. 

Here are two of my legit examples: I have a true up plan that had a payroll total of 280,250.59.  True up is 14,025.20.  Another safe harbor true up plan was 191,176.06 per payroll.  True up is 8,462.18.

Even with these examples, it is highly dependent on the deferral patterns of the employees.

 

[Ryan L]

Thanks Mr Bagwell and Belgarath!   Yes, it seems the true-up could vary considerably with plan design and other factors.  We have a relatively large bonus that pays early in the year as well, and many employees today max out 401k deductions with this bonus.  It will be interesting to see if their behavior changes next year when the match is in place.  

[Mr Bagwell]

With a true up, no need to change the behavior.  :)

[Ryan L]

True!  I was thinking some people may choose to spread their contributions out over the year vs maxing out early, in order to get more of the match sooner.  But I may be over-thinking this.  Thanks for the input!

[Patricia Neal Jensen]

I am late to this party, but I agree.  There are no "rules" concerning how much is matched during the year.  A plan could contribute the entire match at year end (if the document language so provided) so anything contributed during the year is gratis, so to speak.  As your discussion illustrates, I find that a permitted true up usually occurs when the payroll is uneven (bonuses, etc) or when a high paid person is intent on getting the limit in the funds as quickly as possible.  I suggest trying to be clear in the enrollment materials or even adding a sentence or two to the SPD clarifying when the match is contributed and whether or not a true up will occur.  It is usually someone "high up" in a client company who gets "pinched" by  a "no true up" rule and then they make everyone sorry that additional clarification was not provided.

[BG5150]

23 hours ago, Patricia Neal Jensen said:

  I suggest trying to be clear in the enrollment materials or even adding a sentence or two to the SPD clarifying when the match is contributed and whether or not a true up will occur.  It is usually someone "high up" in a client company who gets "pinched" by  a "no true up" rule and then they make everyone sorry that additional clarification was not provided.

Don't confuse "when a match is contributed" with "when a match is calculated."

You can have a match that is calculated on a payroll basis, but they are deposited after year end.  It doesn't happen often, but I have seen it.  (Likewise, I seen annual matches deposited each week with the deferrals.)

The only match that must be deposited during  the plan year is when you have a Safe Harbor Match that is calculated on a payroll basis.  Then, the match must be put into the no later than the end of the quarter following the deferrals.

Having a true-up on a match that is calculated on a payroll basis is silly.

 

[Ryan L]

Thank you Patricia and BG5150!   We will definitely have clear communications and examples of the match as we roll out the program.  

Our match will be calculated and deposited (up to a fixed % max) on a per pay cycle basis, so the year end true up will be to allow front-loading if they participant desires, without losing match.  Today we have a good percentage of "front-loaders" and I'm curious to find out if people will choose to smooth out their contributions throughout the year to receive more of the match during the year vs true-up.