What Compensation is Match Based On?

[Guest D Mitchell]

"This question keeps coming up and we would like someone else's clarification. Our document states that for an Employee's first year of participation,Compensation shall be recognized as of the first day of the plan year. Our plan year is calendar year. I have a new participant who entered the plan on 7/1/00; she earned $26,474.82 in 2000. She deferred $1326.48 from 7/1-12/31; 10% for the 6 months she was in the plan which equates to 5% over the plan year. We match 100% of the first 4%. Would I match 100% of the first 4% of $26,474.82 which would be $1058.99? Or since I deposit match as I do payroll, do I base the match only on the earnings from 7/1/00 when she became a new participant which comes to $530.59?"

[LCARUSI]

I would read the plan document carefully. It will probably specify a calculation resulting in a match of $530.59

[Guest Mr. X]

Absent of any other information, I would match the larger amount.

[rcline46]

You stated the document says all comp for a participant. Some docs state only comp while a participant. If full year comp, then you have another question - is match defined on a pay period basis. Chances are it is not.

So - full year pay, full year match - this is what is known as a 'true up' or 'match patch'!

[Guest TAG]

You need to look at the actual matching formula-I agree with LCARUSI that the match is probably intended to be the lower amount.

If you match for the full year, the new employee will receive a higher percentage contribution from the employer than continuing participants based on amount deferred...so is everyone benefiting equally.

Maybe consider that comp for full year is for discretionary ER contribution-not match based on deferrals. Somewhere in the docs is the actual matching formula. What do the EE deferral sheets state?

tcat

[Guest Mr. X]

I agree as well that the intent is probably to limit compensation based on plan entry, but intent shmintent! You must follow the document and not cut back any benefit earned.