A 401(k) true-up is a year-end adjustment made by employers to ensure that eligible employees receive the full amount of matching contributions promised under the company’s retirement plan. This adjustment is only necessary in plans that include employer matching. If the employee’s contribution pattern causes them to receive less than the intended match during the year, the employer makes up the difference with a true-up contribution.
How Does the 401(k) True-Up Process Work?
To encourage retirement savings, many employers match a portion of employee 401(k) contributions, commonly a percentage of their salary, such as 5%. For example, if an employee earning $100,000 annually contributes 5% of their pay ($5,000), and the employer matches that same 5%, the total yearly contribution would be $10,000.
However, not every employee contributes the same way. Depending on timing or contribution habits, some may miss out on part of the employer match. That’s where a true-up comes in, it ensures that the full match is honored by the end of the plan year.
Common Scenarios That Trigger a True-Up
1. When Employees Reach Their Contribution Limit Early
Suppose an employee decides to max out their 401(k) early in the year. For 2025, the contribution cap is $23,500 for employees under 50. If the employee contributes this full amount within the first half of the year, the employer might only match during the periods when contributions are made, potentially stopping halfway through the year.
Using our earlier example:
- Employee contributes $1,807.69 per pay period for the first 13 pay periods.
- Employer contributes $192.31 per period, totaling $2,500 in matches.
Since the employee made no further contributions for the rest of the year, no additional match is made.
To fix this, the employer issues a true-up contribution of $2,500 at the end of the year, ensuring the full promised match of $5,000 is delivered.
2. When Contributions Are Made Irregularly
If an employee contributes sporadically, say, once per quarter, the employer’s match is typically based on the amount contributed each pay period, not the total for the year. If this results in lower cumulative matches than the plan specifies, the employer would need to issue a year-end correction.
For instance:
- Quarterly contributions of $1,250 yield employer matches of $192.31 per instance.
- Total match across four quarters: $769.23.
To meet the intended match of $5,000, the employer would true-up the difference, $4,230.77, after the plan year ends.
Most employers process true-ups within two months after year-end.
Do All Plans Require True-Ups?
Not necessarily. If the employer calculates matching contributions on a per-pay-period basis and contributions are consistent throughout the year, a true-up may not be needed, unless a processing error occurs. However, for plans that match annually or where employees contribute unevenly, a true-up is an important safeguard.
401(k) Contribution Limits for 2025
While there is no cap on the percentage employers may choose to match, there is a limit to the total combined contributions:
- Under 50: Up to $70,000
- Age 50 and over: Up to $79,000 (includes catch-up contributions)
Employers can also adjust their matching formulas midyear if needed, though they must still comply with IRS rules and plan documents.
Are 401(k) True-Ups a Smart Business Practice?
Administering true-ups does require time and financial planning. Employers must carefully calculate contributions and budget for a potential lump-sum payout after year-end. However, the advantages often outweigh the cost.
Research supports this. A study by Principal Financial Group found that over 60% of employees view employer matching as the most important factor in achieving their long-term financial goals. Similarly, a Betterment survey revealed that 54% of employees would consider leaving their current role for one offering a better 401(k) match.
How Beyond Can Help
Administering retirement plans, especially with features like true-up contributions, requires precision and compliance. Beyond offers payroll and benefits solutions that support 401(k) administration, helping businesses track matching contributions, stay compliant with IRS regulations, and meet employee expectations.
Whether you’re managing a simple match or implementing a detailed year-end true-up strategy, Beyond ensures your retirement benefit process is smooth, accurate, and employee-focused.