Moderately Complicated 401K Question (True-Up, Safe Harbor, Compliance)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
rantk81
Posts: 281
Joined: Tue Apr 18, 2017 8:12 am

Moderately Complicated 401K Question (True-Up, Safe Harbor, Compliance)

Post by rantk81 » Sat May 23, 2020 9:38 am

EDIT: TL/DR Version:
Employer switched (mid-year in 2019) from matching per paycheck, (even after IRS Max contributed), to promising a True-Up.
Now in 2020, company has not yet done the 2019 True-Up, and also has eliminated the 401k match due to COVID. They also furloughed me.
There's an out-standing question about the status of the ~ $3000 in true-up amount I believe I should get.

-----------------------------


Hey - I've got a question about 401k "true up" and would appreciate any insights. It's kind of complicated, so I'll try to give a relative timeline of what happened.

1) I've worked several years for the same company. The company had a very non-generous 401k match (which appeared to be put at the threshold just barely high enough to make the 401k a "Safe Harbor" from HCE calculations.)
2) For many years, I was able to front-load my 401k contributions, topping them out early in the year, each calendar year.
3) After front-loading my 401k contributions in a plan year, my employer would then continue to apply "matching contributions" per paycheck throughout the rest of the year (after I had already hit the IRS maximum for my own contributions.)
4) There was no need for an end-of-year "True up" for me due to the continued "per paycheck match."
5) A few years ago, my employer was acquired by another company. There were subsequently other acquisitions of other companies. (LBOs, consolidation, etc.)
6) Due to the consolidations, there were many payroll systems that needed to be consolidated/unified.
7) The "new and consolidated" matching policy for the company is to ONLY match on a per-paycheck basis if the employee made actual contributions during that specific pay period. They still promised a "true up" at the end of the year.
8) The company completed their "payroll systems consolidation" effort in the middle of 2019. At that point, I immediately lost my "per paycheck match" and was told I would it would be "trued up" in 2020.
9) Now, in 2020, due to COVID and the need to cut costs, the company has suspended (eliminated?) the 401k match, and has acknowledged that they will no longer meet the HCE Safe Harbor tests.
10) They still have NOT done the "true up" for the 2019 plan year. By my calculations, I am expecting a "true up" of almost $3000.
11) Additionally, I've currently been furloughed for over a month. I do not know when/if I will be returning to work.

If someone more experienced with these kind of issues could chime in (and correct me if necessary), I'd much appreciate it.

My assumption is that my employer is obligated to provide the 2019 "true up" since that plan year has technically ended, and I don't think they could retro-actively amend the plan document for a year that is already over? Or even if they did, then maybe they'd have to retroactively apply the HCE tests to the 2019 plan year?

For what it is worth, here is the relevant section of my employer's "401k Summary Plan Description" for 2019. Note that they haven't actually published a full updated document for 2020 (with respect to the elimination of the 401k match that has started this year.)
Non-discretionary Matching Contributions

Non-discretionary matching contributions, if any, will be computed by your Employer based on your eligible compensation
contributed to the Plan each Plan Year.

Safe Harbor Matching Contributions
Your Employer has elected to make matching contributions to certain Participants in an amount equal to 100% of the first
one percent of your eligible compensation, and 50% of the next five percent of your eligible compensation, contributed to the
Plan as Deferral Contributions.

You are eligible to receive this contribution if you are:

* An Employee of the Employer (or Related Employer)
However, you will not receive this contribution if you are:

* A collectively bargained Employee

* An Employee of an un-Related Employer

These contributions satisfy certain Internal Revenue Code requirements and eliminate the need for the Plan to perform certain
non-discrimination annual tests. These contributions may be distributed under the same circumstances which allow your
Deferral Contributions to be distributed (i.e., death, disability, separation from service, age 59½, and termination of the plan
without the establishment of a successor plan). The Plan Administrator will provide written notice to you describing your
rights and obligations under the Plan generally 30 days to 90 days prior to the beginning of Plan Years for which these
contributions will be made. If you become eligible to participate during the Plan Year, the notice will be provided no more
than 90 days before you become eligible.

Note: EMPLOYER matches your contributions on a per-pay-period basis. Therefore, if your contributions stop because
you made an election to stop contributing or because you have reached the maximum contribution limit, your company
matching contributions will also stop. However, EMPLOYER performs a true-up after the end of the Plan Year and may
provide additional company matching contributions to your account based on your annual deferral percentage.

The 401(k) true-up provision requires a review of 401(k) contributions after the end of the Plan Year to determine your
“annual deferral percentage rate”. Based on that rate, an annual match is determined and compared to the match actually
provided. If you did not receive the full match based on your annual deferral percentage rate, additional matching
contributions are provided. Note that the true-up may also indicate an excess match. If this is the case, the excess matching
contributions must be removed from your account.

User avatar
timboktoo
Posts: 820
Joined: Sun Mar 31, 2013 3:42 pm

Re: Moderately Complicated 401K Question (True-Up, Safe Harbor, Compliance)

Post by timboktoo » Sat May 23, 2020 5:57 pm

*bump*

Post Reply