Check whether payroll-period matching satisfies the annual plan formula

A matching contribution calculated on every paycheck may not equal the amount required under a plan that measures the match annually. The IRS identifies this as a common operational problem. Obtain the actual plan terms and ask the administrator whether an annual reconciliation or true-up is required.

Record the applicable compensation definition, matching formula, eligibility conditions and period. Include amendments and any conditions affecting employees who leave during the year. Do not promise a year-end true-up merely because another employer offers one or because the payroll software has that option.

The purpose of this review is to establish what the adopted plan requires. A proposed change to the benefit belongs in a separate plan-design process. Finance should not repair a shortfall by informally rewriting the formula after the relevant compensation has been paid.

Combine all payroll periods, including provider migrations and off-cycle runs, into an employee-level annual file. Identify eligible compensation, pretax and Roth deferrals, employer matching contributions and any corrections. Confirm with the administrator which amounts the formula uses.

Review employees who contributed unevenly, reached an annual deferral limit early, changed their election or took unpaid leave. Their pattern can produce a difference between payroll-period matching and an annual formula. A comparison of average company contribution rates will not reveal the individual impact.

Reconcile payroll's match expense with the amount allocated by the recordkeeper. Keep timing differences and rejected allocations separate from formula differences. The company may have calculated a correct match but failed to fund it, or funded an amount calculated using the wrong compensation base.

Ask the administrator to calculate each participant's required annual match and compare it with amounts already allocated. Review a sample of the underlying compensation and deferral data before approving the result. A spreadsheet formula can be mathematically correct while applying a different benefit from the one the plan adopted.

For a hypothetical plan formula matching 50% of deferrals up to 4% of $60,000 eligible annual compensation, a participant deferring at least $2,400 would receive a $1,200 match, subject to the hypothetical plan's other terms. If $1,050 was already allocated, the arithmetic difference is $150. This illustration does not establish another plan's entitlement.

Have the adviser distinguish a routine annual contribution from correction of a prior operational failure. The remedy, timing and earnings treatment may differ. Retain the classification and instructions so the recordkeeper applies the amount in the correct way.

Approve funding through the company's authorized process and obtain the participant allocation report. Compare it with the reviewed schedule, including former employees and any accounts that initially rejected a contribution. Do not close the task merely because the total bank debit matched the total requested.

Give accounting the final employer obligation and funding details. Keep employee deferrals distinct from employer matching costs. If payroll reports were revised, identify which version should support later plan testing and financial reporting so different teams do not use incompatible annual totals.

Save the plan provisions, annual calculation and allocation confirmation together. Decide how next year's payroll review will detect the same issue earlier. A contribution formula based on annual facts needs an identified annual owner even when ordinary matching is processed automatically with each paycheck.