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Permissible allocation requirement for match?


AKconsult

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We have a client who wants to condition the annual matching contribution for a terminated employee on the employee having worked 520 hours (obviously OK) AND having given and worked 2-weeks notice before he leaves. 

I have never seen a plan condition an allocation for a terminated employee on the employee giving/completing notice.  I can't really find a reason why this would not be allowed though.  Any thoughts on this?  I do realize this adds an additional wrinkle for coverage testing, as far as an additional element we are tracking in making the determination as to whether a terminated employee is benefitting for the match.

Thanks!

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Whether or not the condition is allowable (without researching it, I am leaning toward not), it is certainly ill-advised. If the plan came under audit, and the auditor asked you why a particular person did not receive a match, how do you demonstrate that they did not give 2 weeks' notice? You can't open their file and pull out the non-notice.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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I don't think that would fly.  It just sounds ridiculous.  Giving 2 weeks notice isn't a rule--unless the employee signed some kind of contract, which is unusual.  When a company fires someone do they give the employee 2 weeks notice? No.

4 out of 3 people struggle with math

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Agree w/CBZ and as I have said before, just because you CAN do something doesn't mean you SHOULD.

Documentation would be problematic unless you had the employee sign a release that (s)he did not provide notice. What do you do if someone just stops showing up later in the year? Did they quit w/o notice (no match) or did you fire them for not showing up (match), or do they plan on no match if fired? So you must work 520 hours and terminate voluntarily with notice and remain employed through notice period? Then what happens if I give notice and after a week my employer says I don't need you for the next week, today is your last day? 

This is so rife with potential problems - do your client a big favor and talk them out of this mistake like a good consultant.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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7 hours ago, AKconsult said:

We have a client who wants to condition the annual matching contribution for a terminated employee on the employee having worked 520 hours (obviously OK) AND having given and worked 2-weeks notice before he leaves. 

I have never seen a plan condition an allocation for a terminated employee on the employee giving/completing notice.  I can't really find a reason why this would not be allowed though.  Any thoughts on this?  I do realize this adds an additional wrinkle for coverage testing, as far as an additional element we are tracking in making the determination as to whether a terminated employee is benefitting for the match.

Thanks!

Simple; tell the client NO.  It probably is even interfering with his ERISA rights.  You can't condition contributions, for example, on not stealing from the company even though that makes more sense that this nonsensical request.  If he really wanted to do it and you wanted to administer it (both bad choices), he needs to get a legal opinion from a competent ERISA attorney, so spend a few thousand dollars to find out the answer is still NO!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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