A 401(k) match true-up that was set up wrong, or never run at all, can leave every participant with the wrong employer contribution for the entire plan year, and November is the right time to find it. The error is rarely malicious and almost never obvious. It hides in a payroll formula, a recordkeeper setting, or a plan document that says one thing while operations do another. Left alone until year-end, it becomes a correction instead of an adjustment.
Why a match error is fiduciary, not clerical
The employer match is a promise written into your plan document. The document defines the formula, the compensation that counts, the period over which the match is measured, and who is eligible. When payroll or the recordkeeper applies something different, the plan is not operating according to its terms. Under ERISA, following plan terms is a fiduciary duty, which means a wrong match is a plan operations failure that someone has to own.
It is also a failure with a built-in clock. Whether a participant is shortchanged or overpaid, the fix is easiest while the plan year is still open and the data is fresh. Your 3(16) plan administration function is where this kind of reconciliation lives, and it is exactly the work that slips when no one is named to do it.
How a match goes wrong
Most match errors trace back to a small number of causes:
- The match is calculated per pay period, but the plan document calls for an annual calculation with a true-up for participants who deferred unevenly.
- The payroll compensation definition does not match the plan definition, so bonuses, commissions or overtime are in or out incorrectly.
- A match formula changed by amendment, but the payroll or recordkeeper feed was never updated.
- Eligibility or entry dates were applied wrong, so people received a match too early or not at all.
- A payroll provider change carried over old earning codes. See our post on changing payroll providers for how that mapping breaks.
- Participants who front-loaded deferrals hit the contribution cap early and missed match on later pay periods.
What a true-up is and when the plan requires one
1. Per-pay-period versus annual match
A plan that matches each paycheck can shortchange a participant who defers heavily early in the year and then stops. A true-up is a catch-up match calculated after the measurement period so the participant ends up with what the formula would have produced on annual compensation and annual deferrals. Whether your plan requires one is a document question, not a payroll preference.
2. Who answers the question
Read the match section of the plan document and any adoption agreement elections. Confirm the measurement period, the definition of compensation, and any last-day or hours requirements. If the document and the practice disagree, you have found the problem.
3. Settlor decisions versus implementation
Choosing to add a true-up, change the formula, or add a last-day requirement is a settlor decision made by the employer through a plan amendment. Applying the existing formula correctly is a fiduciary implementation task. Do not fix a calculation problem by quietly redesigning the plan. If the practice you want is not what the document says, amend it going forward and correct the past to the document as written. Our post on when plan documents and operations do not match covers this trap.
The reconciliation: how to find the error
1. Pull the governing documents
Gather the plan document, adoption agreement, every amendment, and the SPD. Confirm which version applied during each part of the year.
2. Rebuild the intended formula
Write the match formula in plain terms, including the compensation definition, the cap, the eligibility rules and any true-up language. This becomes the answer key.
3. Compare to the payroll configuration
Check the earning codes, the deferral and match codes, and the compensation that feeds the recordkeeper. Compare them line by line to the answer key.
4. Sample participants, then expand
Recalculate the match by hand for a spread of participants: heavy early deferrers, steady deferrers, bonus recipients, new hires and anyone near an eligibility date. If the sample shows differences, run the full population.
5. Use the recordkeeper roster as the population
The population to test is the recordkeeper roster, not just current payroll. Include terminated participants with balances, since they may be owed match as well. This is where participant data reconciliation pays off.
6. Quantify over and under
Some participants were shortchanged and some were overpaid. Track both. They are handled differently.
Correcting the error
1. Shortfalls: make participants whole
A missed match generally must be made up, with earnings from the date it should have been deposited, so participants are placed where they would have been. Confirm the earnings method with your document provider and recordkeeper.
2. Overpayments: do not simply claw back
Excess match deposited by mistake is not automatically a participant’s to keep, but it is not a payroll overpayment you can reverse without consequence either. Depending on the plan document and the correction method used, excess amounts may be removed to a forfeiture or suspense account, and your document and correction approach determine how. Our post on forfeiture versus suspense accounts explains where those dollars go and how they may be used.
3. Choose the correction path
Self-correction may be available for some operational failures if you act in time and the failure is eligible. Others call for a formal filing under the Employee Plans Compliance Resolution System. For a plain walk-through, see administrative error correction for plan sponsors, and for how this compares to late deposit and enrollment failures, see late deferral deposit correction and missed deferral election correction. Whether a given failure is eligible, and by when, depends on your facts, so confirm before you act.
An 8-step self-check before the plan year closes
- Locate the match language in the plan document and every amendment.
- Confirm whether a true-up is required and the measurement period.
- Compare the plan compensation definition to payroll earning codes.
- Confirm eligibility and entry dates were applied as written.
- Recalculate a sample, then the full recordkeeper roster.
- Separate shortfalls from overpayments.
- Decide the correction path and document the reasoning.
- Fix the payroll and recordkeeper configuration so it does not repeat.
Where sponsors get hurt
- Assuming the recordkeeper catches match errors. It generally applies what payroll sends.
- Fixing the formula going forward without correcting the past.
- Testing only active employees and missing terminated participants owed a true-up.
- Letting the match error touch testing without re-running nondiscrimination testing and the ADP/ACP results, since the match feeds the contribution test.
- Skipping documentation, leaving no record of what was found, decided and paid.
If your plan is a safe harbor design, the match formula is a commitment, not a preference. Review safe harbor sponsor commitments before changing anything midyear.
What you can delegate and what you cannot
You can delegate the reconciliation work, the recalculation, the correction calculations and the paper trail. You cannot delegate your settlor decisions, such as whether to amend the formula, or the employer-only data that drives the answer: what you actually paid, what you intended, and what you told employees. Build this into your year-end compliance calendar so the match is checked every year, not only after a problem surfaces.
Put a named fiduciary on the correction
A match error is exactly the kind of problem that sits between payroll, the recordkeeper and the plan document, with no one clearly in charge. Admin316 serves as your 3(16) plan administrator and, unlike most providers, accepts formal appointment as the plan’s ERISA 402(a) named fiduciary. That means a defined party owns the reconciliation, the correction decision and the documentation, instead of the problem circulating among departments.
If you suspect your match was calculated wrong this year, there is still time to act before the plan year closes. Book a call with Admin316 and we will walk through your match formula, your payroll feed and your correction options.
