Investing, Personal Finance, Retirement 

401(k) “Additional Company Match Contribution”

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My girlfriend received the strangest letter in the mail at the beginning of the month, it said that her company’s Employee Retirement Savings Plan (fancy term for 401k) has a feature called [Company Name] Match. My interpretation of the letter was that if you don’t contribute enough pre-tax to your 401k, the company match feature will pay out enough so that you get the maximum company match had you contibuted more pre-tax. The letter came from the company servicing her 401k (T. Rowe Price Retirement Plan Services, Inc.). I’ve typed the letter in its entirety (removing company name and specific dollar amounts) and I want to know what you guys think. Does this sound too good to be true or have I misread it?

Here is the letter:

[Company Name] Employee Retirement Savings Plan
Additional Company Match Contribution

Dear M,
The [Company] Employee Retirement Savings Plan has a feature known as the additional [Company] Match. This feature ensures that each participating employee on December 31st of a given year receives his or her individual maximum company match contribution for that year.

The Plan calls for [the Company] to contribute 50 cents for each dollar that a participant contributes, up to certain Plan or IRS prescribed limits. There can be situations where an employee could receive less than their individual maximum company match contribution as a result of the employees’ rate(s) of pre-tax contirbution during the year. The additional [Company] match feature ensures that employees receive their individual maximum company match contribution for each Plan year.

Once all 2004 company match contributions were deposited, we determined whether additional company match contributions needed to be made to any employees’ accounts. In the second quarter of 2004, additional company match contributions for the 2004 Plan year were deposited into the accounts of any employees who had not received their individual maximum.

Accordingly, your second quarter statement will include an additional 2004 company match contribution of $xx.xx. This amount will be shown in the Contributions section of your statement under the headings of “[Company] Match – This Quarter.”

… [removed some contact information]

In thinking about it more, she started the job mid-year so she missed out on company match for the first six months of the year. She has contributed enough money that she’d get that had the same amount she contributed in total had been spread across the twelve months of the year. I’m inclined to think that’s the case, but if not, doesn’t that sound too good to be true? You can contribute less and still get the max company match? And if that is the case, isn’t that especially generous of her company?

I’d love to hear anyone’s thoughts on this…

{ 12 comments, please add your thoughts now! }

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12 Responses to “401(k) “Additional Company Match Contribution””

  1. Dawn says:

    I’m thinking it’s just like a general letter my company sends out. “make sure you put in your pre-tax dollars and we match it” then at the end of the year they make sure everyone has the correct match and will “add to it” if something is off. I don’t get the impression they are Giving away anymore money than the match.

  2. jim says:

    I would think that too except they’re expliciting adding additional money to her 401k above and beyond what was matched the first time around. They’re going to put in more money for Q2 which is a little strange, don’t you think?

  3. Dawn says:

    It wouldn’t be some sort of ‘bonus’ deal for some reason? I’ve never heard of that, I would go to HR and find out the truth before I got my hopes up. That’s me though.

  4. nickel says:

    You’re right… It’s not completely clear what they are talking about. I would advise your girlfriend to give Human Resources a call.

  5. nickel says:

    Any idea why my comments sometimes appear in giant text?

  6. FMF says:

    I vote with Nickel. Go talk to HR. If they don’t have the answer (which sometimes they won’t), contact the plan administrator.

  7. Tim says:

    If true, wouldn’t you contribute the smallest amount possible, or none at all, if you knew the Company would give you more to make up the difference? Something doesn’t sound right here…

  8. Amy says:

    This might not be relevant, but my (very small) company has, in the past, contributed to an non-participating employees 401(k) account because it was top heavy.

  9. Larry says:

    I think I know what this is saying. I’ll explain by example. Say you earn $120K per year = $10K per month. You specify contributing 20% (2K/mo) to your 401(K). Company matches half of the first 6%. First month company match is $300 (6% of your income is $600, company matches half). Same through month 7. Through 7 months, you’ve contributed $14K. Annual limit is $15K. So in month 8, you contribute only 1K, but this is greater than 6%, so you still get the $300 match. Now you’re at the annual limit, so you don’t contribute anything in months 9 thru 12.

    For the year, you earn 120K. You’ve contributed 15K to your 401(K). 6% of 120K is 7.2K. Company match should be half of that – 3.6K. But you only got matches the first 8 months, 300 per month, total of 2.4K. So I think the letter is saying that the company will chip in the remaining 1.2K at the end of the year.

    • Cathy says:

      That is not why. It is to satisfy the top heavy discrimination testing. It is based on the contributions of the employee and their salary relative to the highest paid person in the firm.

  10. Cathy says:

    As a small business owner, I have had to do this additional funding for employees that don’t contribute.

    If the higher salary employees contribute more than the lower salaried, the plan can be “top heavy”.

    The govt. requires the business owner to add to some accounts in order for the “top heavy” discrimination not to fail.

  11. Michael says:

    Larry has it right. This is called a “True Up Contribution”

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