Employer changing 401(k) terms

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Salmon Maki
Posts: 34
Joined: Tue Mar 31, 2015 10:08 pm

Employer changing 401(k) terms

Post by Salmon Maki » Thu Nov 23, 2017 11:17 am

Until now, my employer has allowed flat dollar contributions per pay period for our 401(k). They also had a true up at the end of the year. This allowed me to frontload and still get my entire 5% match. Starting in 2018 they are only allowing percentage contributions and will be matching per pay period with no true up. They said there will be a final true up in June 2018 for the year of 2017.

If I leave the company prior to June 2018, are they still required to give me the 2017 true up?
I see why they are eliminating the true up as a cost cutting measure, but what is the advantage to them to eliminating the flat dollar contribution option? I can only think this is so fewer people can plan well and take advantage of the full match.

I plan to start a job search shortly, as this is one of many small negative changes introduced recently. I figure it’s still to my advantage to max out my 401(k) early in 2018 since our actual plan has low fees (for now) and the uncertainty of what benefits a new job might offer. Are there things I’m missing there that I should consider?

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JamesSFO
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Joined: Thu Apr 26, 2012 10:16 pm

Re: Employer changing 401(k) terms

Post by JamesSFO » Thu Nov 23, 2017 12:16 pm

The % vs. $ could just be a payroll choice. The true up sounds like a cost savings.

ERISA Stone
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Re: Employer changing 401(k) terms

Post by ERISA Stone » Thu Nov 23, 2017 7:42 pm

If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.

260chrisb
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Joined: Wed Apr 28, 2010 7:26 pm

Re: Employer changing 401(k) terms

Post by 260chrisb » Thu Nov 23, 2017 8:13 pm

Well, if you're confident you will change jobs max it out and get over the lost matching. Besides, your new employer may require a year of employment before you can get in their plan. If you are uncertain then set a percentage that will allow you to reach the max and get the full match. I did the front load method for 14 years and I never really understood how the true up worked. My understanding was that it was a small amount as they had already contributed their portion on a per pay period basis thru the year. If that was the case then it wouldn't really be much of a cost saving and besides nobody does this. Well, some do. The company changed the plan last year (under new management) and would not offer any match after the max was met and no true up. Needless to say I was not going to walk away from the free money so I set it to max based on a per pay period at a set amount.

xerxes101
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Re: Employer changing 401(k) terms

Post by xerxes101 » Thu Nov 23, 2017 8:26 pm

ERISA Stone wrote:
Thu Nov 23, 2017 7:42 pm
If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.
This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.

ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Re: Employer changing 401(k) terms

Post by ERISA Stone » Fri Nov 24, 2017 12:07 am

xerxes101 wrote:
Thu Nov 23, 2017 8:26 pm
ERISA Stone wrote:
Thu Nov 23, 2017 7:42 pm
If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.
This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.
If the match in March was related to the prior year, the participant would be due those funds even if the participant terminated. There can be no further provision on a participant once the plan year ends. If you know a company is doing it differently, they're doing it wrong.

sailaway
Posts: 103
Joined: Fri May 12, 2017 1:11 pm

Re: Employer changing 401(k) terms

Post by sailaway » Fri Nov 24, 2017 12:20 am

ERISA Stone wrote:
Fri Nov 24, 2017 12:07 am
xerxes101 wrote:
Thu Nov 23, 2017 8:26 pm
ERISA Stone wrote:
Thu Nov 23, 2017 7:42 pm
If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.
This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.
If the match in March was related to the prior year, the participant would be due those funds even if the participant terminated. There can be no further provision on a participant once the plan year ends. If you know a company is doing it differently, they're doing it wrong.
The plan wording often makes it clear that you must still be employed at the time of distribution.

ERISA Stone
Posts: 1377
Joined: Tue Jun 24, 2014 8:54 am

Re: Employer changing 401(k) terms

Post by ERISA Stone » Fri Nov 24, 2017 10:46 am

sailaway wrote:
Fri Nov 24, 2017 12:20 am
ERISA Stone wrote:
Fri Nov 24, 2017 12:07 am
xerxes101 wrote:
Thu Nov 23, 2017 8:26 pm
ERISA Stone wrote:
Thu Nov 23, 2017 7:42 pm
If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.
This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.
If the match in March was related to the prior year, the participant would be due those funds even if the participant terminated. There can be no further provision on a participant once the plan year ends. If you know a company is doing it differently, they're doing it wrong.
The plan wording often makes it clear that you must still be employed at the time of distribution.
A plan sponsor cannot add this language, legally at least. It doesn't hold up.

To make sure we're talking about the same thing. Suppose your employer provides a match for the 2016 calendar year. The employer deposits the funds in 2017, or part of the funds in 2017. The employer cannot make any sort of stipulation that you must be employed in 2017 in order to receive the 2016 contribution. It doesn't matter if you have already received a distribution of your account prior to the deposit. The plan sponsor must re-open your account to deposit the funds .

stan_the_man
Posts: 101
Joined: Wed Feb 22, 2012 6:23 pm

Re: Employer changing 401(k) terms

Post by stan_the_man » Fri Nov 24, 2017 11:01 am

ERISA Stone wrote:
Fri Nov 24, 2017 10:46 am
sailaway wrote:
Fri Nov 24, 2017 12:20 am
ERISA Stone wrote:
Fri Nov 24, 2017 12:07 am
xerxes101 wrote:
Thu Nov 23, 2017 8:26 pm
ERISA Stone wrote:
Thu Nov 23, 2017 7:42 pm
If the match is related to 2017, you are eligible to receive it. It doesn't matter if you terminate employment in 2018.
This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.
If the match in March was related to the prior year, the participant would be due those funds even if the participant terminated. There can be no further provision on a participant once the plan year ends. If you know a company is doing it differently, they're doing it wrong.
The plan wording often makes it clear that you must still be employed at the time of distribution.
A plan sponsor cannot add this language, legally at least. It doesn't hold up.

To make sure we're talking about the same thing. Suppose your employer provides a match for the 2016 calendar year. The employer deposits the funds in 2017, or part of the funds in 2017. The employer cannot make any sort of stipulation that you must be employed in 2017 in order to receive the 2016 contribution. It doesn't matter if you have already received a distribution of your account prior to the deposit. The plan sponsor must re-open your account to deposit the funds .
I believe that they can require that you were employed on the last day of the plan year to get a true up or profit sharing contribution.

ERISA Stone
Posts: 1377
Joined: Tue Jun 24, 2014 8:54 am

Re: Employer changing 401(k) terms

Post by ERISA Stone » Fri Nov 24, 2017 12:24 pm

stan_the_man wrote:
Fri Nov 24, 2017 11:01 am
ERISA Stone wrote:
Fri Nov 24, 2017 10:46 am
sailaway wrote:
Fri Nov 24, 2017 12:20 am
ERISA Stone wrote:
Fri Nov 24, 2017 12:07 am
xerxes101 wrote:
Thu Nov 23, 2017 8:26 pm


This was not my experience with a previous employer. They matched 4% of employer's salary in the 401K account throughout the year, and then you would get another 2% only in March of the following year. I think this was a way for them to get their employees stay longer and not leave.
If the match in March was related to the prior year, the participant would be due those funds even if the participant terminated. There can be no further provision on a participant once the plan year ends. If you know a company is doing it differently, they're doing it wrong.
The plan wording often makes it clear that you must still be employed at the time of distribution.
A plan sponsor cannot add this language, legally at least. It doesn't hold up.

To make sure we're talking about the same thing. Suppose your employer provides a match for the 2016 calendar year. The employer deposits the funds in 2017, or part of the funds in 2017. The employer cannot make any sort of stipulation that you must be employed in 2017 in order to receive the 2016 contribution. It doesn't matter if you have already received a distribution of your account prior to the deposit. The plan sponsor must re-open your account to deposit the funds .
I believe that they can require that you were employed on the last day of the plan year to get a true up or profit sharing contribution.
Yes, they can require you to be employed on the last day of the plan year. In my example, if you are employed on 12/31/2016 and there is a last day rule, you are eligible to receive the contribution. It doesn't matter if the contribution is deposited sometime in 2017. Even if you terminated on 1/1/2017, you are still eligible to receive the 2016 contribution.

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flamesabers
Posts: 1558
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: Employer changing 401(k) terms

Post by flamesabers » Fri Nov 24, 2017 12:31 pm

stan_the_man wrote:
Fri Nov 24, 2017 11:01 am
I believe that they can require that you were employed on the last day of the plan year to get a true up or profit sharing contribution.
My employer's 401k plan has the same requirements.

KSActuary
Posts: 175
Joined: Fri Jan 13, 2012 10:53 pm

Re: Employer changing 401(k) terms

Post by KSActuary » Fri Nov 24, 2017 2:24 pm

How about a truly discretionary employer match that is made after 12/31 but before tax filing that uses testing to pass ADP/ACP testing?

ERISA Stone
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Joined: Tue Jun 24, 2014 8:54 am

Re: Employer changing 401(k) terms

Post by ERISA Stone » Fri Nov 24, 2017 2:41 pm

KSActuary wrote:
Fri Nov 24, 2017 2:24 pm
How about a truly discretionary employer match that is made after 12/31 but before tax filing that uses testing to pass ADP/ACP testing?
Is this question for me? If so, the requirements to receive the discretionary matching contribution are already determined in the plan document. There is either an hours requirement, last day rule, both, or neither (or some modification I suppose if the employer just wanted to make its job tougher from an administrative perspective). A plan cannot have any sort of provision a participant must meet AFTER the end of the plan year to receive any kind of contribution.

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