If you’ve been around the 401(k) block as long as I have, you know that the most innocuous-looking sentence in a plan document—the stated matching formula—is often the one that blows up in a plan sponsor’s face. And not with a cute little pop, mind you. I’m talking full-scale compliance detonation. A weapon of mass distraction.
Yes, distraction. Because it distracts employers into thinking it’s “simple,” “predictable,” and—my personal favorite—“set it and forget it.” In reality, the stated match formula is the silent assassin of operational failures, the Trojan horse of corrective contributions, and the leading cause of TPA-sponsored aspirin purchases.
And I’ll say it plainly: I’m not a fan. Not even close.
Why Stated Match Formulas Cause More Harm Than Good
Let’s call it what it is: a trap.
A stated match formula obligates the employer to a precise percentage applied to a precise deferral rate on a precise timetable. That sounds great on paper—until payroll gets it wrong, or HR changes providers, or someone forgets the “true-up,” or a plan amendment occurs at the wrong moment, or the TPA, recordkeeper, and plan sponsor are all working off three different PDFs of the plan document.
One deviation—just one—and suddenly you’re grinding through:
· Voluntary corrections
· QNECs
· Restorations
· IRS “love letters”
· And the dreaded, “How did we miss this for three years?” committee meeting
It’s amazing how much damage one little formula can cause.
Why I Prefer the Discretionary Match
Now let’s look at the alternative: a discretionary match with a corresponding board or employer resolution announcing the match amount each year.
Clean. Elegant. Flexible. Almost poetic in its simplicity.
Here’s why it works:
· It doesn’t force the employer’s hand. No match this year? A smaller match? A bigger match? Completely up to the employer.
· It removes the operational guesswork. Payroll isn’t handcuffed to a fixed percentage; instead, the employer decides the match after seeing how the year plays out.
· It reflects real intent. Employers can adjust based on profits, staffing changes, and business cycles—rather than being bound by a formula drafted five HR directors ago.
· It dramatically reduces errors. You can’t violate a formula that doesn’t exist.
· It simplifies plan administration. Yearly resolutions make everything explicit, current, and documented.
And here’s the kicker: employees still get the match they expect—but without the operational landmines.
The Reality: Flexibility = Fewer Failures
Most plan sponsors don’t realize that their stated match formula is the #1 source of their matching errors. The formula often doesn’t reflect what the employer truly meant to provide—especially when the business environment changes.
A discretionary match lets reality drive decisions, not rigid document language.
It’s the difference between steering a ship with a flexible rudder… versus locking the wheel in place and hoping the wind never changes.
Guess which one auditors prefer?
The Rosenbaum Rule of Matching
If you want fewer corrections, fewer headaches, fewer IRS filings, fewer late-night emails from your payroll manager—ditch the stated match formula.
Use discretionary matches. Document with annual resolutions. Avoid needless fiduciary heartburn.
And if you absolutely insist on using a stated formula? Well… don’t say I didn’t warn you when it becomes your next weapon of mass distraction.
