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Tiered match based on compensation?


BG5150
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Could a sponsor add a match that varies with compensation?  Something like:

Comp $1 to $30,000 match 100% deferrals

Comp $30,001 to $50,000 match 80% of deferrals

$50k to $100k 70% match

$100k+  50% match

And maybe cap some of the higher tiers, like 70% of deferrals up to max match of $10,000.

QKA, QPA, CPC, ERPA

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

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The sponsor is trying to get the lower paid employees more 'equity' in the plan.  It's a 403(b) plan.  400 actives.

Toying with a new comp allocation that gives lower paid people bigger percentages.  I doubt we would have problems with the testing that way.

QKA, QPA, CPC, ERPA

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

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As long as you can write it into a document and administer it, it looks like it would be non-discriminatory. Unless you had a lot of low paid 5% owners but doesn't sound like that would be an issue in a 400 life 403(b).

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Thanks, WCC.  I even chimed in on that brief discussion.

Looks like its doable.  I just need to see if my document will support it.

QKA, QPA, CPC, ERPA

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

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Yes, you can.  It may have to be tested but as has been previously pointed out, it will probably pass.  As for your document, it may support it being written into the document.  You could also explore naming the classes in the document and then having the document indicate that the match formula itself is discretionary and then writing the details into a Board Resolution.

The issue you may face with a 403(b) is that almost everyone will be eligible for deferrals but may not sign up to make them.  One can have a lot of nondeferring participants in a 403(b) and if they don't defer, they won't receive matching and, consequently, will be "0's" in testing.   I would explore using a waiting period for the matching.  It may give you a better result as the plan sponsor will be then less likely to  end up with a lot of newly hired low paid individuals who are not deferring.  Most documents today permit a "bifurcated" eligibility in 403(b) (Immediate for deferral but a service requirement, like a year wait, to be eligible for matching) .

Finally, I would not count on lower paid (or any!) employees figuring this out for themselves.  An advisor or someone good in HR should focus on communicating with low paid workers whenever they become eligible for matching.  Have meetings; show illustrations, etc.

Good luck!  Looks like the sponsor is trying to do a good thing.

PNJ

Patricia Neal Jensen

Vice President and Nonprofit Practice Leader

| QBI, an Ascensus company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@QBILLC.com

P 818-449-6096

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