One of the most frequently asked questions by NIPSCO employees is how do I know if I’m getting my full 401(k) match? This stems from those employees who may be maxing out their 401(k) halfway through the year. The way NIPSCO makes matching contributions to employees' 401(k) is on a payroll-by-payroll basis. Meaning NIPSCO matches each time you get paid as long as you are contributing to your 401(k). However, matching contributions to your 401(k) are based off of your yearly compensation, not your 401(k) contributions.
According to the plan compensation includes:
· Pre-tax or deferred contributions made to your 401(k)
· Commissions paid by the company
· Annual incentive payments
· Annual salary or wages
· One-time payments
· Shit differentials
· Overtime
"True-up" is a term used in defined contribution plans, such as 401k, to refer to the process of contributions made by an employer to an employee's account. Here’s how it works…
Example:
Employers may offer to match a percentage of their employees' contributions to the plan, up to a certain limit. For example, an employer might offer to match 100% of an employee's contributions up to 6% of their salary. If an employee contributes 6% of their salary, the employer would contribute an additional 6%. If the employee decides to max out their 401k within 6 months what about the rest of their matching amount?
For those employees who contribute the maximum allowed amount each year, which means they may miss out on some of the employer's matching contribution if they max out early. The solution to this situation? NIPSCO perform a "true up" at the end of the year, where they calculate the difference between what was contributed and what would have been contributed if the employee had contributed the maximum amount throughout the year. The employer then makes an additional contribution to make up for any missed matching contributions. Typically, true-up contributions will show up in your account about two months after the plan year ends.
Here's how it looks…
401(k) Match: 6% dollar for dollar
The common misconception about 401k matching is that it it’s based on your contribution to the plan. That is not true. Matching contributions to your 401k plan are based on your yearly income.
If you need any help with understanding the terms of your 401k, Wisely Advised is here to help assist and give you the proper guidance to help you better understand your 401k.
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