(b)lines Ask the Experts – How to Match When Deferrals Are Front-Loaded

“I work for a 403(b) plan sponsor, and have recently encountered a situation when a few individuals have front-loaded their elective deferrals to the 403(b) plan, so that have recently met the 402(g) limit, even though were are less than halfway through the year.

“Our payroll system appropriately cut off these participants at the 402(g) limit, so there are no excess deferrals to address. However, because we have a matching contribution that matches elective deferrals each pay period, their match ceased when the elective deferrals ceased, resulting in these employees not receiving their full matching contribution for the year. How do we address this issue, if at all?”


Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:


This is a very practical question that participants raise from time to time. In order to maximize matching contributions made on a payroll by payroll basis that are less than 100% of deferrals (very rare), the participant should make deferrals ratably over the entire plan year. Otherwise, as you point out, the match will stop when the participant hits the maximum dollar limit on deferrals under 402(g) before the end of the calendar year. 


For example, if the employer has 24 pay periods in 2018, then the participant should defer $770.84 per paycheck (last one should be $770.68 so as not to exceed the 402(g) limit) to maximize deferrals of $18,500 and matching contributions. If the employer has a match of 50% of deferrals up to 6% of compensation and the participant has compensation of $3,000 per pay period, the participant will receive a match of $90 per pay period ($3,000 x 6% x 50%). The same match on an annual basis would also equal $2,160 ($3,000 x 24 x 6% x 50%). However, if the participant front-loaded his deferrals over the first half of the year, his match would be $90 per pay period for only 12 pay periods, or $1,080. 


With a payroll by payroll matching contribution, participants need to be mindful of adjustments to their elections they might have to make for compensation increases or special bonus deferral elections in order to maximize the matching contributions they receive.


To remedy participants’ shorting themselves on the match, an employer may amend the plan to provide for a “true-up” matching contribution at the end of the year. With a true-up matching contribution, the participant in the example would receive a maximum match of $2,160.  But, the match could become more expensive and administratively complex for the employer. However, if the employer chooses to make the match (on an annual basis, or on a payroll by payroll basis with or without a true-up), the plan document and the summary plan description (SPD) should accurately reflect the match rules.



NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.


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