What Is 401K True Up Matching

by Andy Hough on April 11, 2007

Did you just get a letter from your employer about a “True Up” matching change and wondered what the heck that meant? Let me explain what that probably means, though you’ll have to talk to your company HR to find out for sure. Essentially what happens is that when you contribute to your 401k and get a match from your company, they will only match up to a percentage of your monthly paycheck. If you get a 3% match on a 3% contribution and make $1,000 per month, if you contribute $30 then the company kicks in $30. If you put in $100, the company only puts in $30.

Now, let’s say you make $10,000 (and there is no highly compensated employee clause, for simplicity’s sake), and you contribute 50% of your salary to your 401k. By March (three months in), you’ll have hit the maximum contribution to your 401k ($15,500 for 2007). However, your 401k administrator will only have given you 3% each month which is only $1,200. If you had spread your 401k contributions across the 12 months, you’d have gotten a match of $3,600. If your 401k offered a True Up Match, they’d have the employer kick in the other $2,400 at the end of the year so that you get the “true” employer match.

This allows you to contribute as much as you want, whenever you want, and not be worried that some tricky math accounting would mess with your employer match.

{ 2 comments }

Albert Ng February 24, 2008 at 1:31 am

Let’s say the Plan has immediate eligibility for deferral but with one year service requirement for match eligiblity.

Match formula – dollar for dollar match up to 5% of pay
Participant’s eligible pay for 2008 – $50,000

Participant hired on 7/1/07, match entry date – 7/1/08 and started deferring 5% upon hire and for the whole year in 2008.

Would his deferrals made prior to match eligiblity date count for true-up match contributions or not? That is, would he be getting $2,500 match or $1,250 match for 2008?

Debbie April 13, 2012 at 3:35 pm

Let’s say you contribute 3% to your 401k and your company matches dollar for dollar up to the 1st 3%.

You continue to contribute 3% of your pay until the end of June and then decide due to personal reasons you need to stop your employee tax deferred contribution through the end of the year.

Our 401k administrator is saying that the company still owes you a match regardless that you stopped or changed your contribution percentage.

That does NOT seem fair.

Please advise.

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