Jump to content
ratherbereading

403(b) Match done on Fiscal Year compensation

Recommended Posts

I have a 403(b) plan who calculates their matching contribution each year using compensation as of their fiscal year (e.g. this year's match calculated on comp from 7/1/2019 - 6/30/2020).  Their plan year is 1/1 - 12/31.   They have done this  since before I came on board.  Is there anything wrong with doing this? 

The document does not address other than to say the matching contribution shall be determined by the employer with respect to each plan year.  Compensation is W2 wages increased by elective deferrals for all contributions/no exclusions.  

Share this post


Link to post
Share on other sites

Check the plan document again, it should define a "Compensation Measurement Period" or "Compensation Computation Period." It might be through a reference, for example it might say that the compensation measurement period is the limitation year, so then you would have to check the definition of limitation year. But as long as the document says that compensation is measured for the fiscal year ending in the plan year, or similar, it should be fine.

Share this post


Link to post
Share on other sites
8 minutes ago, C. B. Zeller said:

Check the plan document again, it should define a "Compensation Measurement Period" or "Compensation Computation Period." It might be through a reference, for example it might say that the compensation measurement period is the limitation year, so then you would have to check the definition of limitation year. But as long as the document says that compensation is measured for the fiscal year ending in the plan year, or similar, it should be fine.

Thank you!

Share this post


Link to post
Share on other sites

For a profit-sharing plan, there must be a definite, predetermined allocation formula, so the plan document ought to state how contributions are allocated.  Not sure though whether that requirement applies to 403(b) plans without researching it.

One can have the match determined based on fiscal year compensation, but it opens up the possibility of more widespread 415 limit failures if the limitation year is the plan year.  Also, it may yield odd ACP test results because the ACP test will use plan year compensation.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...