Set Up a Multi-Tiered 401(k) Employer Match

Instructions for setting up a multi-tiered 401(k) employer match liability, along with other required setup steps. A Safe Harbor 401(k) is an example of a multi-tiered 401(k) plan.

These instructions include specifying the earnings on which the 401(k) liability should be calculated and registering the code in the PR Federal Info form so it will calculate on all employees with a corresponding 401(k) deduction.

Tiered 401(k) employer matches require use of more than one liability code because there is more than one limit. Because the system calculates both liabilities on all wages at all times up to their respective limit, the codes work in tandem to calculate the correct total match.

Click here to view a tutorial.

Step One: Determine Your Company Match

Before proceeding, you will need to determine your company match and apply it to a formula for the system to process it correctly. Company matches are commonly phrased like this: "100% match of the first 3% of employee contributions and 30% match of the next 2% of employee contributions." Insert your values in the following statement:

(A)_______ match of the first (B)_______ of employee contributions and (C)_______ match of the next (D)_______ of employee contributions.

For clarity, the following instructions refer to these four values as A, B, C, and D.

Step Two: Create a Pre-Tax Deduction Group

Prior to setting up a multi-tiered 401(k) employer match (liability), you must set up a deduction group. The system uses this group to apply limits across multiple 401(k) liabilities.

To create a pre-tax deduction group:

  1. Open the PR Pre-Tax Deduction Groups form and click the New Record icon.
  2. In the Pre-Tax Group field, enter a number for the group.
  3. In the Description field, enter a description for the group.
  4. Specify the group's 401(k) annual limits.
    • For standard or Roth 401(k) employee contributions, use the Standard Annual Contribution Limit field.
    • For catch-up 401(k) employee contributions, use the Catch up Annual Contribution Limit field.
    • For 401(k) employer match liabilities, use the Annual Compensation Limit field.
Step Three: Set Up the First Liability Code
  1. Open the PR Deductions/Liabilities form and click the New Record icon.
  2. In the Dedn / Liab Code field, enter a number that will be assigned to this new liability code.
  3. In the Description field, enter a description.
  4. In the Type section, select Liability .
  5. In the Calculation Category field, select E-Employee or F-Federal.
    If you select F-Federal, you must also select a Federal Type of 1-Withholding.
  6. In the GL Account field, press F4 to select the appropriate GL liability credit account.
  7. In the Method field, select G-Rate of Gross .
  8. In the Rate / Amount #1 and Rate / Amount #2 fields, enter the value of (A – C) in negative decimal form in both fields. Using the sample above, the entry would be the sum of 1.00 – 0.30 (–0.70000) in both fields.
  9. In the Limit section, select the Rate of Earnings option.
  10. In the Rate field, enter the value of (A – C) multiplied by the value of B. Using the sample above, the entry would be the product of 0.70 x 0.03 (.021000).
  11. Select the Accumulate subject amounts check box.
  12. Select the 401k Liability check box.
  13. In the Pre-Tax Group field, press F4 to select a pre-tax group.
  14. If you want the liability amounts to update automatically to an Accounts Payable invoice, on the Addl Info tab, select the Automatic Update to Accounts Payable check box.
Step Four: Add the Earnings that Contribute to the 401(k) Liability Amounts

The system bases the employee 401(k) liability amounts on the earnings codes you add to the basis of the liability.

Add the same earnings codes here as are set on the 401(k) deduction(s) you are matching. You can add codes to the basis in two ways.

  1. Option 1: Add codes to the basis one at a time
    1. Open the PR Deductions and Liabilities form.
    2. In the Dedn / Liab Code field, enter the code that needs codes added to its basis. Press F4 to select from a list of valid codes.
    3. On the Basis Codes tab, in the EDL Type field, select the appropriate type - Earnings, Deduction, or Liability.
    4. In the EDL Code field, enter the code number or press F4 to select from a list of valid codes.
    5. For each earnings code in the grid, select the Subject Only check box.
    6. Repeat to add other EDL codes that should contribute to the basis. In this case, add each 401(k) deduction code that you are matching. Do not select the Subject Only check box on the 401(k) deduction code(s).
  2. Option 2: Add multiple codes to the basis

    1. Open the PR Deductions and Liabilities form.
    2. In the Dedn / Liab Code field, enter the code that needs codes added to its basis. Press F4 to select from a list of valid codes.
    3. Click Add Basis Codes.
    4. In the PR Add DL Basis Codes form that displays, do one of the following:
      • To apply the same basis codes as are applied to an existing deduction or liability code, select the Copy basis codes from another DL Code option. Enter the deduction or liability code in the DL Code to Copy From field. Press F4 to select from a list of existing codes.
      • To apply all existing eligible earnings, deductions, and liability codes as the basis, select the Add all eligible Earnings and DL Codes to basis option.
    5. Click Add. If you do not receive a confirmation message that Basis Codes were successfully added, click Refresh at the top of the form
    6. Delete from the grid any individual earnings, deduction, or liability codes that do not apply
    7. For each earnings code in the grid, select the Subject Only check box.
    8. If not already in the grid, add each 401(k) deduction code that you are matching. Do not select the Subject Only check box on the 401(k) deduction code(s).

Step Five: Set Up the Second Liability Code
  1. Open the PR Deductions/Liabilities form and click the New Record icon.
  2. In the Dedn / Liab Code field, enter a number that will be assigned to this new liability code.
  3. In the Description field, enter a description.
  4. In the Type section, select Liability .
  5. In the Calculation Category field, select E-Employee or F-Federal.
    If you select F-Federal, you must also select a Federal Type of 1-Withholding.
  6. In the GL Account field, press F4 to select the appropriate GL liability credit account.
  7. In the Method field, select G-Rate of Gross .
  8. In the Rate / Amount #1 and Rate / Amount #2 fields, enter the value of A or C, whichever is less, in negative decimal form in both fields. Using the sample above, the entry would be –0.30000 in both fields.
  9. In the Limit section, select the Rate of Earnings option.
  10. In the Rate field, enter whichever is less:
    • A multiplied by the value of (B + D) or

    • C multiplied by the value of (B + D)

    Using the sample above, the entry would be the product of 0.30 x 0.05 (.015000).
  11. Select the Accumulate subject amounts check box.
  12. Select the 401k Liability check box.
  13. In the Pre-Tax Group field, press F4 to select a pre-tax group.
  14. If you want the liability amounts to update automatically to an Accounts Payable invoice, on the Addl Info tab, select the Automatic Update to Accounts Payable check box.
Step Six: Add the Earnings that Contribute to the 401(k) Liability Amounts

Repeat instructions in Step Four, this time for the liability code you just created in Step Five. Apply the same earnings codes and deduction codes to both liability codes.

Step Seven: Add the Liability Codes to the PR Federal Info Form

Adding the liability codes you just created to the PR Federal Info form allows the system to correctly calculate the liability. Additionally, by doing so, the system calculates the liabilities for every employee that has the 401(k) deduction while preventing you from having to set it up individually in the PR Employee Dedns / Liabs form.

  1. Open the PR Federal Info form.
  2. In the PR Company field, enter the appropriate payroll company. Press F4 to select it from a list.
  3. On the Add'l Federal Based Dedns/Liabs tab, in the DLCode column, enter the code number of the first liability code you set up. Press F4 to select it from a list.
  4. Repeat for the second liability code.