Recent Posts:

---

Using Force Out Distributions to Avoid a 401(k) Audit

---

Decoding IRS Notice 2023-43: Easier 401(k) Error Fixes!

---

401(k) audit – 2023 Form 5500 changes

---

New Audit Standard (SAS 136)

---

401(k) Service Providers and the Role They Serve

---

Frequent 401(k) Audit Finding Series - Documentation Failures

---

Withdraw from Your 401(k) at Age 55

---

What is a 3(16), 3(21), or 3(38) Fiduciary?

---

---

View AllSubscribe

401(k) Match True-Up Explained

The operational details of a company sponsored 401(k) plan are defined in a Plan Document and corresponding adoption agreement.  Companies electing an employer contribution that matches employee 401(k) deferrals will list additional information relating to the “calculation” and “funding” periods for the matching contributions. 

When matching contributions are funded each payroll period, but are required to be recalculated annually, a “true-up” calculation is needed.

Example:    Assume all compensation is eligible compensation and the employer matching contribution is equal to 50% of each dollar an employee contributes on the first 4% of their compensation.

For our example, an employee receives an annual salary of $31,200 paid bi-weekly (26 periods) or $1,200 a period.  For the first half of the year, the employee requests that 401(k) contributions of 10% be withheld from their pay.  On July 1^st, they contact HR and request to stop deferring (0%).

In connection with the processing of bi-weekly payroll, the employer would have funded a matching contribution of $312 ($15,600 of compensation multiplied by 50% of 4%) as shown below: 

At year-end, usually in connection with annual non-compliance testing, a true up calculation is performed using annual wages and 401(k) contributions.  In this example, the employee is found to have deferred 5% of their annual compensation: 

As the calculated annual deferral rate of 5% exceeds the maximum (4%) that the employer has agreed to match, the true-up match is limited to the first 4% of compensation and the employee would be owed an additional true-up contribution of $312:

Note:  had the calculated annual deferral % been less than 4%, the employee would have been entitled to 50% of their annual 401(k) contributions.  The true-up in this scenario would equal 50% of annual deferrals less the actual matching contributions funded during the bi-weekly payroll process.

The true-up calculation is typically performed for all employees at one time.  Once the calculations have been reviewed for accuracy, the employer will fund the true-up contribution to the plan.