"True-Up" Matching Contributions

Our ERISA consultants on the Columbia Management Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. Through our relationship with the Columbia Management Learning Center, we routinely guide Columbia Management financial advisor partners through the IRS, Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC) rules and regulations that govern employer-sponsored retirement plans and IRAs.

A recent call with an advisor in Alabama is representative of a common question involving 401(k) plan matching contributions. The advisor asked: One of my plan sponsor clients just met with his accountant and was told that he needs to make a “true-up” matching contribution to his 401(k) plan for several participants. What is a true-up matching contribution?”

Highlights of Discussion

  • A true-up matching contribution is an amount required of a plan sponsor at the end of the year for certain plan participants in order to ensure the sponsor has followed the matching formula as defined by the plan document.

  • True-ups are commonly required when a plan operationally matches participant deferrals on a per-pay-period basis throughout the year, but the matching formula of the plan document states the employer will match salary deferrals up to a percentage of a participant’s total compensation for the plan year.

  • Let’s look at an example.

    • Cam elects to contribute 5% of his $48,000 annual compensation to his 401(k) plan. Cam’s employer processes payroll twice a month. That means, the employer pays Cam $2,000 each time, deducts $100 of deferrals (5% x $2,000) each time from his salary, and contributes the amounts to Cam’s 401(k) account.

    • Operationally, Cam’s employer contributes a matching contribution of 100% of his salary deferral up to 3% of his wages every pay period, or $60 each pay period (3% x $2,000). The matching formula in the 401(k) plan document states “the employer will match salary deferrals up to a percentage of a participant’s total compensation for the plan year.”

    • Now, suppose Cam stopped making salary deferrals at the end of April. At that point, his salary deferrals totaled $800 and his matching contributions totaled $480. For the year, the plan requires a matching contribution of 100% of Cam’s salary deferrals up to 3% of his annual compensation (3% x $48,000). One hundred percent of Cam’s deferrals is $800 (but he has only received $480 of match). That means Cam’s employer must make an additional $320 ($800 - $480) in matching contributions (a true-up contribution) in order to comply with the terms of the plan document.

  • The employer must make the true-up contribution to the plan no later than the date specified in the plan document, and no later than the deadline (including extensions) for filing the business’s federal tax return in order to receive a tax deduction for the year. Failure to make the payment by the required date constitutes a plan operational failure that can normally be corrected according to the IRS Employee Plans Compliance Resolution System.


Employers must be true to their 401(k) plan matching contribution formulas. When the match is based on salary deferrals up to a percentage of a participant’s total compensation for the plan year, an employer may find a true-up matching contribution for some participants at year-end may be required. Financial advisors who are aware of this result are better positioned to support their plan sponsor clients.

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