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Matching Contribution


Stash026

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I have a client with a great number of highly compensated employees.  They want to have a different matching formula for some of the HCE, but not necessarily all of them.  Is there a way anyone can think of that works and isn't considered "biased"?

For instance, can we have a different matching formula based on years of service and how big of a discrepancy could there be? 

Thanks in advance!

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Assuming you want to give the select HCEs a higher not a lower match, and assuming the potential group would constitute a "top hat" group, the client may wish to consider implementing a nonqualified plan.

 - There are two types of people in the world: those who can extrapolate from incomplete data sets...

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you can discriminate amongst HCEs all you want, but if there are NHCEs you have to run BRF

in other words, if you want to give selected HCEs less than everyone else, yes, you can do that because you will pass.

but if you are also providing NHCEs less then you have a discrimination issue (their rate of match would be less than one or more HCEs)

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1 hour ago, 401king said:

Would the document need to permit such a "flexible" match formula? I.e. a different match for each "Class". Our document software could not accommodate various formulas. 

make it a discretionary match.  then you can do whatever you want subject to testing.  pretty much

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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50 minutes ago, BG5150 said:

make it a discretionary match.  then you can do whatever you want subject to testing.  pretty much

Even the most discretionary option we have requires some formula entry. Not sure if the same is true for all documents from the bigger providers.

R. Alexander

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Ours just says match is discretionary.  That's it.  We have the option to put in a formula, but why do that?

 

That's the document.  The r/k system is a different matter.  I would be difficult to allocate different formulae to different groups, but not impossible, I think.  (Put people into divisions and run a match for each division, changing the formula as needed)

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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As Tom Poje points out, matching rate is an "other right or feature" under 1.401(a)(4)-4(e)(3)(G), so might need to run 401(a)(4) BRF. But if all you are doing is reducing the match rate for some HCEs below the general match rate, which is the highest and which highest rate applies to all NHCEs as well as some HCEs, should not be a problem, except as pointed out above in terms of plan language and record-keeping systems. Also, if (and in my experience this is often the case), the desire for lower level of match is because some of the NHCEs want more current cash (e.g., they want a smaller match but a bigger bonus for 2017 paid in early 2018), you have to worry about the nonqualified CODA issue under the 1.401(k)-1 regs.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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