Changing match formula mid-plan year

[Guest Kelly Igel]

Our prototype under TRA'86 was written assuming that the match was made at year-end (i.e., it did not contain a provision or option to calculate it on a payroll period basis). We therefore generally only permitted employers to change the matching formula from plan year to plan year...

Just when or how frequently can the matching formula be amended (or amended from fixed to "discretionary")? Our new prototype for GUST contains an option to specify that the match is based on "each payroll period". Does that provision (versus match based on "entire plan year") have a bearing on the timing or frequency of when the matching formula can be amended?

I recall that IRS Notice 2000-3 (regarding safe harbor) specified that safe harbor matching contributions can be ceased mid-plan year with 30 days advance written notice to the employees. Does this same approach hold true for any amendments to a plan's matching formula - i.e., it can be made at any time during the plan year provided that a written employee notice is provided 30 days before the effective date of the change?

And is this 30 day notice similar to the 204(h) notice, or where in the regulations is it discussed?

Thanks for your help...

[Erik Read]

Just refreshing and pushing to the top - maybe we can get an answer or discussion going.

Interesting that your new docs allow for the per payroll option... that's going to make life as an admin intersting - we'll end up with some really off the wall ACP %'s!

[Guest Jennifer Reid]

As long as the matching contribution benefit has not yet accrued under the terms of the plan (i.e., last day employment and/or 1,000 hours of service), the plan can be amended prospectively to reduce the amount of the match. The 30 days notice in the safe harbor rules is for safe harbor plans only. There would be no 204(h) notice requirement, but some sort of participant communication would be advisable anyway so that participants aren't expecting more than they actually get.

[Guest bobark]

Could you clarify the term "amend prospectively"?

It is clear you mean you cannot wait until after year end to eliminate. It is clear you can amend to say "no match after ...."( a prospective date). It is less clear - to me anyway - whether you can amend during a year to eliminate a periodic match.

For example, if a plan makes quarterly match, can it amend in Oct/Nov to state the fourth quarter match will be reduced/eliminated?

[Guest Jennifer Reid]

Yes, so long as the 4th quarter match has not yet been accrued under the terms of the plan for matching contribution accrual requirements.