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401K-company matching contibutions

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Susan Smith

Guest
What is the name of your state?We live in California. My husband's company makes matching contributions to his 401k plan. They contribute 100% of his first 3% and 50% of his next 3%. He contibutes the maximum of $13,000. His company allows him to deduct this contibution all within the fist three months of the year.

He recently noticed that this year the company had only made matching contributions of $900 to his account and had stopped contributing in March. When he asked both his HR department and the plan administrator about this, he was told that the company only makes matching contributions for the period of time he is contributing. Since he contributed his entire allowed amount by March, they stopped adding their share at the same time. They insist that the matching contribution is based on his monthly contribution--if he isn't having anything deducted, they aren't matching.

Needless to say, we don't agree. The plan administrator at Fidelity was no help and his response was, "that's the way it goes". What is our recourse?
 


Beth3

Senior Member
As the company contribution is in the form of a match, it shouldn't matter whether he contributes $13,000 in one lump sum or in equal installments over 12 months. The annual dollar amount of the company's contribution would be the same.

You'll need to post back and share what your husband's annual salary is so someone can do the math.
 

ShyCat

Senior Member
That's how some 401(k) plans are set up, and yes, it's perfectly legal. The company match in my employer's plan happens to be a one-time annual event based on the total annual contribution, so it wouldn't matter if the employee's contribution was spread out through the year or maxed out after a few months. But plans that are set up to do the company match throughout the year are often set up to directly associate the company match to the employee contribution, so when one stops so does the other. I've heard of other plans where the employer makes an annual adjustment, if necessary, to "true up" the match to the annual contribution. If such is not the case in your husband's plan, he should change his contribution percentage so that his contribution maxes out at the end of the year rather than after just three months.
 

Beth3

Senior Member
ShyCat, the point is that the company's match should be the same regardless of the period of time over which the employee's contribution is made.

If he's deferring $10,000 into the Plan, (let's assume $5,000 = 3% of his annual compensation), the company match would be $7,500 in this instance. The only difference would be whether that $7,500 match was contributed in 12 equal installments (i.e. the employee was deferring that 10K at a rate of $833/mo) or in larger installments if the employee deferred the 10K in larger increments over a shorter period of time.

The annual employer contribution would not vary.
 

ShyCat

Senior Member
No, it's not the same for all plans. The company match is stated as "x% of y% of salary", not "x% of contribution". There's a big difference.

Okay, using your numbers, if 3% is $5000, annual salary is about $166,667. If he were paid monthly, the monthly salary would be about $13,389. Since 3% of $13,389 is about $417, the company match with each month's payroll would be $625.

$625 X 12 months = $7500 total company match.

However, under many plans, the company match stops when his contributions stop. He contributes about $4333 per month for three months for the maximum $13000, and only receives $1875 company match (i.e., $625 x 3).

If instead he contributes about $1083 per month, the maximum of $13000 would be reached with the 12th paycheck, so the company match of $625 would have been made each of the 12 months.
 

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