So, What’s-Up with a “True-Up” 401K match?

The other day, I was reading a list of a client’s employer benefits. I saw the usual: health insurance, HSA, life/accidental death, PTO, and then 401K match with “true-up.” I know a lot of financial lingo, but this one stumped me, as I had never heard of “true-up” before! I went to go research it, and soon realized it is an important tidbit of knowledge to share in case it is an unfamiliar term to you as well.

Do you contribute to your 401K? If so, does your employer offer a match? Well, if you answered yes to those questions, this blog is for you!

First, I want to ask you a few questions…

• Have you or do you change your contribution percentage throughout the year?
• Or, did you not contribute at all for a period of time, and then decided to begin contributing?
• Has your income changed at your employer significantly during the year while still at your employer?
• Are you a highly compensated employee, and max out your 401k midway through the year?

To begin, I’ll explain what a true-up match is. A “true-up” 401K match allows you as an employee to receive employer matches that you would have otherwise missed out on because of 401K front-loading (aka you maxed out your 401k too early because your contribution rate was so high), or because of uneven contributions spread throughout the year.

Many companies do a pay period match. That means they look at your paycheck, and say their match is dollar for dollar up to 4% - if you put in 10%, they will calculate what 4% of your compensation is and contribute that to your 401k.

On the other hand, for a true-up match, since they are calculating the match over the full plan year, your annual contribution amount is divided by your annual compensation to determine the annual deferral rate.

For example, if you deferred 10% for half the year and 0% for the other half, this would yield an annual deferral rate of 5%, therefore eligible for the full match (in the example I gave earlier).

Unlike the per period situation where a portion of deferrals are not matched (you were not meeting the match minimum of 4%), with the true-up match, the entire amount you deferred would be eligible for matching!

We always love for people to make sure they are meeting their 401k match requirements…if you get the full match by contributing 4%, try to make sure you’re always contributing at least 4% in every pay period. True-up match or not, that will make sure you are good to go for the entire year. There’s nothing better than free money from your employer!

According to a survey done by PlanSponsor.com, only 55% of employers offered a true-up match. After reading this, I have one more question for you—does your company? If they don’t, ask them to consider it! You can always reach out to your HR team to learn more.

P.S-  stay tuned for my monthly newsletter where I share and inform all about financial planning in new and creative ways. If you want to sign up to have it delivered right to your email, click here!  And let others know they can sign up. 

This material is intended for educational purposes only. You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost. Dorval & Chorne Financial Advisors is a registered investment adviser with the SEC. Registration of an investment adviser does not imply a certain level of skill or training.