Author Topic: 401k Match year  (Read 539 times)

Mgmny

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 28
  • Location: Northwest 'Burbs of MSP
401k Match year
« on: January 03, 2019, 08:30:38 AM »
My employer offers a discretionary match to 401k plans per year which they apparently decide in Q1 following the end of the plan year. According to the plan, " The percentage of Elective Deferrals to be matched will be determined by the Company and allocated to participants at the end of the Plan Year [plan year = calendar year]"

If they make this match "sometime in Q1" which is what I am told, are they violating the plan document (it appears to me they are?), and if they make this match in 2019 instead of 2018, will this count towards my 2018 max or my 2019 max? I'm not sure if employer matches can be extended like personal IRAs can be for plan years (i.e. i can still contribute to 2018 IRA until April (or October?) 2019).

Any help here would be appreciated. Thanks!

Yanisimo

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: 401k Match year
« Reply #1 on: January 03, 2019, 09:44:40 AM »
I don't know the answer to your first question, but in regards to your second question - have you tried asking your employer?

walkwalkwalk

  • Stubble
  • **
  • Posts: 130
Re: 401k Match year
« Reply #2 on: January 03, 2019, 09:53:16 AM »
They are not violating the document. Match made in 2019 is very normal (however I have only had this happen with a SIMPLE IRA with my employers, but I don't think the rules are different for 401k's)

dandarc

  • Magnum Stache
  • ******
  • Posts: 3223
  • Age: 36
Re: 401k Match year
« Reply #3 on: January 03, 2019, 09:58:31 AM »
It would depend on your specific plan documents - the full plan documents.

However in general, employer contributions to 401Ks can be made up until the employer's tax filing deadline, including extensions.

Mgmny

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 28
  • Location: Northwest 'Burbs of MSP
Re: 401k Match year
« Reply #4 on: January 04, 2019, 10:17:09 AM »
Thanks everyone. I brought my concern up to the company's leadership team, so we will see what/if they come back with. It sounds like the match is usually given in March (*sigh*).

I wonder if someone were to quit between now and the match if they would still give them the money from the last year? It seems like they would need to, but if they don't give the money until the following March and someone quit in January, I'd be surprised if they did?

It's sad that i'll miss out on so much compounding when they don't match until the next March, but i guess it is what it is.

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1625
  • Location: Minnesnowta
Re: 401k Match year
« Reply #5 on: January 04, 2019, 10:21:44 AM »

It's sad that i'll miss out on so much compounding when they don't match until the next March, but i guess it is what it is.

Market could do down more, you might be able to buy stocks on sale compared to today.

« Last Edit: January 04, 2019, 10:26:29 AM by Cromacster »

Mgmny

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 28
  • Location: Northwest 'Burbs of MSP
Re: 401k Match year
« Reply #6 on: January 04, 2019, 10:26:33 AM »

It's sad that i'll miss out on so much compounding when they don't match until the next March, but i guess it is what it is.

Market could do down more, you might be able to buy stocks on sale compared today.

I mean, sure, but that's speculation, and time in market > timing market.

Cromacster

  • Handlebar Stache
  • *****
  • Posts: 1625
  • Location: Minnesnowta
Re: 401k Match year
« Reply #7 on: January 04, 2019, 10:37:10 AM »

It's sad that i'll miss out on so much compounding when they don't match until the next March, but i guess it is what it is.

Market could do down more, you might be able to buy stocks on sale compared today.

I mean, sure, but that's speculation, and time in market > timing market.

It's not speculation it's just looking at a possible bright side. 

Need2Save

  • Stubble
  • **
  • Posts: 229
  • Location: Maryland (USA)
Re: 401k Match year
« Reply #8 on: January 05, 2019, 01:35:56 PM »
However in general, employer contributions to 401Ks can be made up until the employer's tax filing deadline, including extensions.

This is correct. ERISA permits 401(k) sponsors up until the tax filing deadline to count a matching contribution for the Plan Year.  We do this at my company as well but process in January not March.  Your employer's plan documents may not define the requirements for eligibility with great detail (whether you have to be actively employed on the day they process the deposit for the Plan year) If the official plan document doesn't specify this, I would ask them now and keep the email response they send to you if you wish to make a claim in the future that they are administrating the plan in a discriminatory fashion. They must have a rule to follow and be consistent and not treat some employees one way versus other simularly situated employees. It's more common that you have to be active on the last day of the Plan year (December 31 in most cases).

Also, I don't think anyone addressed your question about whether the employer deposit counts as 2018 vs 2019 but the employer contribution does not effect your personal contribution limit ($18,500 in 2018 or $19,000 in 2019) plus extra if you are over the age of 50.  It's only YOUR contributions which count towards these annual limits.

Mgmny

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 28
  • Location: Northwest 'Burbs of MSP
Re: 401k Match year
« Reply #9 on: January 08, 2019, 11:18:29 AM »
However in general, employer contributions to 401Ks can be made up until the employer's tax filing deadline, including extensions.

This is correct. ERISA permits 401(k) sponsors up until the tax filing deadline to count a matching contribution for the Plan Year.  We do this at my company as well but process in January not March.  Your employer's plan documents may not define the requirements for eligibility with great detail (whether you have to be actively employed on the day they process the deposit for the Plan year) If the official plan document doesn't specify this, I would ask them now and keep the email response they send to you if you wish to make a claim in the future that they are administrating the plan in a discriminatory fashion. They must have a rule to follow and be consistent and not treat some employees one way versus other simularly situated employees. It's more common that you have to be active on the last day of the Plan year (December 31 in most cases).

Also, I don't think anyone addressed your question about whether the employer deposit counts as 2018 vs 2019 but the employer contribution does not effect your personal contribution limit ($18,500 in 2018 or $19,000 in 2019) plus extra if you are over the age of 50.  It's only YOUR contributions which count towards these annual limits.

So like i said in my OP, the plan doc says, "The percentage of Elective Deferrals to be matched will be determined by the Company and allocated to participants at the end of the Plan Year [plan year = calendar year]"

That to me makes it look like they must allocate on 12/31? Like, if it needs to be allocated by "end of the year" (12/31/18) how does March 2019 fly?

Also, it WOULD impact total contributions (which I know are closer to $55k). I'm guessing this impacts exactly 0 people at my company of 45, but it could, in theory, impact them.

Need2Save

  • Stubble
  • **
  • Posts: 229
  • Location: Maryland (USA)
Re: 401k Match year
« Reply #10 on: January 11, 2019, 08:19:22 AM »
Although I am a Benefits Director, I obviously don't manage your plan. I do have to agree with you that it would be a best practice to clarify the timing of the employer deposit to avoid participant confusion.  In my plan document, we have it worded as "the Company's contribution will be made within 30 days following the end of the contribution period."  Our contribution period is further defined as ending on December 31. So we have until January 30 to make this deposit.  Our Plan year can still be defined as January 1 to December 31.

The way your plan is worded (if that is it's entirety) does not make it clear and thus your confusion about why it isn't deposited by the 31st.  However, it is permissable by ERISA and the IRS to make the employer contribution count towards the prior year (including the combined contribution limit) as long as it's done with 30 days of the due date of the company's tax return.  For most companies this is October if they file for an extension every year.

It would be rare indeed that a company match was so generous as to go over the combined contribution limits. In 2019, the limit is $56,000. Assuming you put in $19,000 of your own money the company match or profit sharing contribution would need to exceed $37,000 to be of issue.  If you are over age 50, there is of course the additional $6,000 in catchup contributions allowed.

I'm not sure if you've received a response from your company yet, but I think you are suggesting that they clarify the timing of the deposit to set employee's expectations correctly and also whether there is a requirement to be actively employed either on the last day of the Plan Year or the date the deposit is actually made.  Hopefully, they will see the value in addressing both of your concerns.  You mentioned the company is 45 people, so this sounds like it probably is a 'small retirement plan' (not subject to external annual audits).  These are both concerns an external auditor may have suggested the sponsor make to tighten up the documentation and thus compliance.

Mgmny

  • Pencil Stache
  • ****
  • Posts: 533
  • Age: 28
  • Location: Northwest 'Burbs of MSP
Re: 401k Match year
« Reply #11 on: January 14, 2019, 11:41:51 AM »
Although I am a Benefits Director, I obviously don't manage your plan. I do have to agree with you that it would be a best practice to clarify the timing of the employer deposit to avoid participant confusion.  In my plan document, we have it worded as "the Company's contribution will be made within 30 days following the end of the contribution period."  Our contribution period is further defined as ending on December 31. So we have until January 30 to make this deposit.  Our Plan year can still be defined as January 1 to December 31.

The way your plan is worded (if that is it's entirety) does not make it clear and thus your confusion about why it isn't deposited by the 31st.  However, it is permissable by ERISA and the IRS to make the employer contribution count towards the prior year (including the combined contribution limit) as long as it's done with 30 days of the due date of the company's tax return.  For most companies this is October if they file for an extension every year.

It would be rare indeed that a company match was so generous as to go over the combined contribution limits. In 2019, the limit is $56,000. Assuming you put in $19,000 of your own money the company match or profit sharing contribution would need to exceed $37,000 to be of issue.  If you are over age 50, there is of course the additional $6,000 in catchup contributions allowed.

I'm not sure if you've received a response from your company yet, but I think you are suggesting that they clarify the timing of the deposit to set employee's expectations correctly and also whether there is a requirement to be actively employed either on the last day of the Plan Year or the date the deposit is actually made.  Hopefully, they will see the value in addressing both of your concerns.  You mentioned the company is 45 people, so this sounds like it probably is a 'small retirement plan' (not subject to external annual audits).  These are both concerns an external auditor may have suggested the sponsor make to tighten up the documentation and thus compliance.

Thanks Need2Save! I'm still waiting on a response from the company, but it seems like they are sticking with "We have always done it in March" which is really too bad.