Author Topic: Sneaky(?) employer match application - beware!  (Read 5925 times)

PNW Lady

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Sneaky(?) employer match application - beware!
« on: March 14, 2015, 12:53:19 PM »
My husband’s employer provides a 5% match contribution. Or so they say. So of course we take full advantage; we’re no fools. Or so we thought.

So I just randomly decided to read my husband’s employer’s retirement plan Summary Annual Report. I was cleaning up our home office, sorting through ridiculous amounts of mail and paperwork, and there it was. As I worked my way through it, I came to an illustrative example of how the matching contribution (5%) is calculated. Son of a bitch! Here is the excerpt:

"If you contribute large amounts early in the calendar year and reach the $17,500 legal limit on 401(k) Before-Tax Contributions before the end of the calendar year, you will not receive a XXXX Matching Contribution for any pay period in which you do not make 401(k) Before-Tax Contributions. As a result, there are times where consistently contributing a lower amount (at least 5% of your pay each pay period) will result in a higher XXXX Matching Contribution over the year."

Mother fucker. It looks like we lost 1.2% company match for 2014 because we had set my husband’s deferral election at 20%, which maxed him out early in the year, leaving pay periods towards the end of the year where he had no deferral.

I encourage everyone that receives an employer matching contribution to double check and read the fine print to make sure you aren’t leaving money on the table.

I feel duped.

El Gringo

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Re: Sneaky(?) employer match application - beware!
« Reply #1 on: March 14, 2015, 12:55:02 PM »
I think that's pretty standard.

PNW Lady

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Re: Sneaky(?) employer match application - beware!
« Reply #2 on: March 14, 2015, 01:00:04 PM »
If that is standard, I suppose that makes me feel like more of a dummy.

My employer provides a 15% profit share contribution only (no match), of which the safe harbor amount is contributed during the year and the remainder is calculated at the end of the year as a % of comp. Since that is the world I am familiar with the match is relatively new to me.

iluvzbeach

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Re: Sneaky(?) employer match application - beware!
« Reply #3 on: March 14, 2015, 01:04:00 PM »
Very much the standard. Because of this you have to carefully calculate how to withhold so that you time it such that you max out right at the end of the year and get the match all year long.

Heckler

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Re: Sneaky(?) employer match application - beware!
« Reply #4 on: March 14, 2015, 01:05:33 PM »
Another recent thread.

http://forum.mrmoneymustache.com/investor-alley/maxing-your-401k-contribution-employer-match/


On the other hand, this is a great problem to have to deal with.  Far better than not getting the match because you're only saving 2%

AlexK

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Re: Sneaky(?) employer match application - beware!
« Reply #5 on: March 14, 2015, 01:39:52 PM »
My company is the same way. In fact the HR manager sent me an email about it because my contribution rate is set to 75% right now and I would be in jeopardy of losing out once I hit $18k. I didn't reply because the only way doing this would make sense is if I plan on quitting soon and I don't want to let the cat out of the bag before bonuses are paid in April.

hodedofome

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Re: Sneaky(?) employer match application - beware!
« Reply #6 on: March 14, 2015, 02:11:20 PM »
Yep, figure out how to max it out on the last paycheck of the year.

Mr Fixit

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Re: Sneaky(?) employer match application - beware!
« Reply #7 on: March 14, 2015, 06:31:14 PM »
Not all companies do it that way.  The one I work for continues to put the match in even after you max out for the year.

LordSquidworth

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Re: Sneaky(?) employer match application - beware!
« Reply #8 on: March 14, 2015, 08:18:38 PM »
My husband’s employer provides a 5% match contribution. Or so they say. So of course we take full advantage; we’re no fools. Or so we thought.

So I just randomly decided to read my husband’s employer’s retirement plan Summary Annual Report. I was cleaning up our home office, sorting through ridiculous amounts of mail and paperwork, and there it was. As I worked my way through it, I came to an illustrative example of how the matching contribution (5%) is calculated. Son of a bitch! Here is the excerpt:

"If you contribute large amounts early in the calendar year and reach the $17,500 legal limit on 401(k) Before-Tax Contributions before the end of the calendar year, you will not receive a XXXX Matching Contribution for any pay period in which you do not make 401(k) Before-Tax Contributions. As a result, there are times where consistently contributing a lower amount (at least 5% of your pay each pay period) will result in a higher XXXX Matching Contribution over the year."

Mother fucker. It looks like we lost 1.2% company match for 2014 because we had set my husband’s deferral election at 20%, which maxed him out early in the year, leaving pay periods towards the end of the year where he had no deferral.

I encourage everyone that receives an employer matching contribution to double check and read the fine print to make sure you aren’t leaving money on the table.

I feel duped.

Standard practice. Likely stemming from how they budget for the year.

arebelspy

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Re: Sneaky(?) employer match application - beware!
« Reply #9 on: March 14, 2015, 08:26:58 PM »

My company is the same way. In fact the HR manager sent me an email about it because my contribution rate is set to 75% right now and I would be in jeopardy of losing out once I hit $18k. I didn't reply because the only way doing this would make sense is if I plan on quitting soon and I don't want to let the cat out of the bag before bonuses are paid in April.

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ABC123

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Re: Sneaky(?) employer match application - beware!
« Reply #10 on: March 15, 2015, 06:11:28 AM »
Maybe my company is weird. I only do enough to get the full match, so nowhere close to the max. But they sent something out a while back about "true up" contributions, at the end of the year they make sure you get the full match. It is a big company,  I assumed most would work the same way.

kpd905

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Re: Sneaky(?) employer match application - beware!
« Reply #11 on: March 15, 2015, 07:46:08 AM »
Yes, this seems to be pretty common.  Anyone who wants to max out early should make sure that their employer does a true up at the end of the year.

Vilgan

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Re: Sneaky(?) employer match application - beware!
« Reply #12 on: March 15, 2015, 09:26:40 AM »
Both "if you max out early, you miss out on match" and "true up, where they make you whole" are pretty common. Everyone should be clear on how their company handles it. I went through a lot of effort trying to make sure I didn't max out too early and then found out it didn't matter since my company makes everyone whole at the end with true up.

planner10

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Re: Sneaky(?) employer match application - beware!
« Reply #13 on: March 17, 2015, 03:07:57 PM »
I don't know if that is standard practice or not, but at several companies I have worked for they do a "True-up" that will contribute the remaining employer contribution owed if you max out before the end of the year.  In those instances if you leave the company before March you do not receive the True-up for the previous year. 

It's worth a quick note to your 401k administrator asking them about "True-up contributions in the instances where an employee reaches the IRS max 401k contribution before the end of the year".  If they say no then ask them to consider adding it.  Have fellow employees write in as well.  If you're at a large company send a suggestion to HR.  If you're in a small company mention it to management.  Maybe they can add it.

ZiziPB

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Re: Sneaky(?) employer match application - beware!
« Reply #14 on: March 17, 2015, 03:20:35 PM »
My current employer doesn't do a true up but it does match after-tax contributions (which are allowed under our plan) so you can continue contributing after reaching the IRS limit and receive the match.   I think I missed some match the first year I participated in the plan because I didn't understand how it worked.  My prior employer didn't match at all so I usually maxed out my contributions by mid year.  It was quite an adjustment...

FIreDrill

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Re: Sneaky(?) employer match application - beware!
« Reply #15 on: March 17, 2015, 03:22:16 PM »
Both "if you max out early, you miss out on match" and "true up, where they make you whole" are pretty common. Everyone should be clear on how their company handles it. I went through a lot of effort trying to make sure I didn't max out too early and then found out it didn't matter since my company makes everyone whole at the end with true up.

Yep, luckily both my employer and my wife's employer does a true up the following January.  We were able to max out both of our 401k's and IRA's for 2014 so now we are focusing on front loading our 401k's.

Gone Fishing

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Re: Sneaky(?) employer match application - beware!
« Reply #16 on: March 17, 2015, 03:24:05 PM »
Not all companies do it that way.  The one I work for continues to put the match in even after you max out for the year.

+1

Our match is based on your contribution rate, no matter if you are maxed out.  I did have the HR department tell me once that it would cut off, but through a miscalculation on my part I found out it didn't.  I have never seen any language like the OP posted in our plan.  Too bad it was buried in the documents, but at least they noted it.

planner10

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Re: Sneaky(?) employer match application - beware!
« Reply #17 on: March 18, 2015, 04:33:31 PM »
Zizi - do you mean your employer matched past the 18k up to the 30ish k total contribution (pre and post tax)?  I say 30ish because I am assuming the match would be more than 15k if it is on such a big amount.

If so that is the first I've heard of this situation and it is awesome!!!  Wish more 401k plans pick that up!!!