Example of an Employer True Up Contribution

An employee is paid monthly, and earns $5,000 per paycheck. The employer matches 50% up to 6% of pay (i.e. a maximum of 3% of pay is contributed). The employee contributes 8% of pay from January through June and then stops deferrals for the remainder of the year.

For the first six paychecks of the year the employee contributed $400 per paycheck with an total annual deposits of $2,400. The employer contributed $150 per paycheck for a total of $900 for the year. Because the employee contributed in excess of the match during part of the year and then did not make contributions for part of the year, they would be eligible for a true up contribution. (This also works if they make contributions less than the matching contribution for the remainder of the year). A true up contribution of $300 would be made by the employer (which is 50% of their annual contributions, not to exceed 3% of the employees annual pay).

Caveat on Other Employer Contributions

There is a caveat on the calculation for the employer contribution: the annual employer contribution includes other employer contributions (e.g. Percent of Pay, Conditional Match, etc.), except it does not include the Profit Sharing contribution.

For example: In the above example, if the employer contributed an additional 1% of pay, this would add an additional $600 to their contribution for the year. This would mean the employee was not eligible for a true up contribution at the end of the year.