PLANSPONSOR - November/December 2017 - 18

Upfront
What Is a True-Up Match?
IN order to make sure participants maximize
their retirement savings, plan sponsors
may offer a true-up match.
This type of contribution allows a
sponsor to complete its match contributions
for participants who reached the
maximum statutory deferral amount
before the end of the year or who failed
to contribute enough for part of the year,
causing the company match to stop.
A true-up match is contributed at
year end or one to two months into the
new year, largely because plan sponsors
must review all contributions made
through the prior 12 months, according to
Michael Knowling, vice president of client
relations and business development at
Prudential.
" It allows [employees] to not leave free
money on the table, " Knowling says. " It
allows them to maximize their employer
contribution or employer matching contribution. "
He says this is an extra benefit
for workers, and it aids plan sponsors by
helping participants maximize defined
contribution (DC) plan savings.
He explains how it would work for
a highly compensated employee (HCE):
" Let's say an employee is contributing 15%
How a True-up Match Works
Plan X matches 100% of the annual amount deferred by a participant
up to 6% of compensation, paid semi-monthly. If a participant earning
$50,000 annually contributes an average of 6% over the course of the
year, but at varying rates, he misses out on match dollars.
Participant
Deferral
Participant deferral (January - June)
Participant deferral (July - December)
True-up match due
Total
$3,000
9%, or $2,250
3%, or $750
Traditional
Plan Match
$1,500
$750
$750
$3,000
$750
True-up match
$750
(Jul - Dec)
$1,500
(Jan - Jun)
$750
(Jul - Dec)
$2,250
(Jan - Jun)
$2,250
Traditional
plan match
$3,000
Participant
deferral
of salary, or $1,500 a month, to the plan;
that will allow him to reach the statutory
contribution limit by year end. Maybe in
that scenario, the company has a matching
contribution where it matches 50% of the
first 10% contributed; in that situation,
the employee would get the full company
match with no action required.
" On the other hand, let's say that
employee has a contribution each month of
employee may defer less than the match
rate for the first half of a year and then
defer well above the rate for the last half.
In that instance, Murphy says, employers
will average out the match and apply the
difference for the participants.
In the event a plan sponsor was to
miss fulfilling the true-up-something
Knowling regards as very unlikely due to
the visibility of the process-the sponsor
" It allows [employees] to not leave free
money on the table. It allows them to
maximize their employer contribution
or employer matching contribution. "
$3,000. This participant will hit the statutory
limit, probably six months into the
year. At a match of 50% on the first 10%
he contributed, the participant will receive
less match than if he spread his contributions
out over the year. A true-up contribution
allows the employer to contribute the
difference into his account. "
Meghan Murphy, director at Fidelity
Investments, cites another scenario: An
would work with either its compliance or
legal team on a resolution.
Still, because of the true-up's status
as an unrequired benefit, Murphy notes,
plan sponsors would not face a penalty
from regulators should a contribution
be missed. If the arrangement is written
into the summary plan description (SPD),
however, the missed true-up would need
to be funded. -Amanda Umpierrez
18 PLANSPONSOR.com November-December 2017
http://www.PLANSPONSOR.com
PLANSPONSOR - November/December 2017

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