What Is a 401(k) True-Up and Why Does It Matter?
A 401(k) true-up is an additional year-end employer contribution designed to ensure employees receive the full match promised in their retirement plan. This adjustment applies only to 401(k) plans that offer employer matching contributions, and it’s typically used to correct shortfalls that may occur during the year.
How a 401(k) True-Up Works
Many businesses encourage employees to save for retirement by offering to match a portion of their 401(k) contributions. A common setup might include an employer matching up to 5% of an employee’s salary. If an employee earning $100,000 contributes 5% of their salary ($5,000) over the year, the employer matches that same amount, resulting in a total contribution of $10,000.
However, certain circumstances can cause an employee to receive less than the full intended match throughout the year. The true-up contribution is used at year-end to bridge that gap and ensure the company fulfills its commitment.
Let’s look at two common situations that may lead to a true-up.
Situation 1: The Employee Maxes Out Early
Suppose an employee decides to front-load their contributions, maxing out early in the year instead of spreading them evenly. In 2025, the limit for employee contributions is $23,500 for individuals under age 50.
If the employee contributes the full amount within the first half of the year, their employer may stop matching after the contributions stop, even if the full match hasn’t been reached. For example, the employer may only have contributed $2,500 instead of the full $5,000 by midyear. The true-up would then be used to deposit the remaining $2,500 by the end of the year or shortly after.
Situation 2: Irregular Contributions Throughout the Year
An employee who contributes inconsistently — such as quarterly lump sums — might also miss out on the full match during the regular payroll cycle. If the plan calculates matches per pay period, the employer might only contribute a partial match based on the timing of the employee’s input.
At the end of the year, the company performs a review. If the cumulative contributions fall short of the total match commitment, a true-up is made to correct the discrepancy. For example, if only $769.23 was matched throughout the year, a final contribution of $4,230 would be added to bring the total to the promised $5,000.
When Is a True-Up Necessary?
Plans that match contributions per pay period often don’t require true-ups unless an error occurs, such as a missed employer contribution. In contrast, plans that assess match totals annually generally use true-ups to ensure full compliance with the match formula.
2025 Contribution Limits
Although employers can structure match percentages as they wish, there are annual limits on combined contributions. For 2025:
- Employees under age 50 can receive up to $70,000 in combined employer and employee contributions.
- Employees age 50 or older are allowed up to $79,000 (which includes catch-up contributions).
Employers are free to adjust their matching policies throughout the year, but they must still adhere to these federal limits.
Are 401(k) True-Ups Worth the Effort?
While managing true-ups may require careful calculations and added administrative effort, along with potential year-end cash planning, the investment can pay off.
Surveys have shown that employer matching is highly valued by workers. In a study by Principal Financial Group, over 60% of participants identified matching contributions as a key factor in achieving long-term financial security.
Another survey from Betterment found that more than half of employees said a company’s matching 401(k) program would influence their decision to switch employers.
How Beyond Helps Simplify the Process
If your organization uses a modern payroll and benefits platform like Beyond, tracking and managing matching contributions, including true-ups, becomes far more efficient. With automated tools for year-end audits, contribution tracking, and compliance reporting, Beyond helps reduce errors and streamline retirement plan management.
Offering a thoughtful retirement plan match and following through with true-ups, isn’t just about benefits compliance. It’s also about building trust, boosting retention, and showing employees you’re invested in their future.