Mistaken matching contribution

[eilano]

Plan document provides for a discretionary match and employer notified employees that match for the plan year would be 25% up to 6% of compensation. Matching contribution was deposited every payroll period. After valuation report for the plan year was completed, it was discovered that the matching contribution that was deposited was 25% with no limit on compensation. No one exceeded the annual addition limit. Employer wants to know if they can withdraw the matching contribution in excess of 6% of compensation since it was communicated to the employees that the matching contribution would be limited to 6% of compensation. Participant statements have already been distributed but corporate return has not been filed. Can employer take “excess matching contribution” from the participants? What other options does the employer have?

[Erik Read]

This is a classic problem with employers that wish to deposit matching contributions based on pay periods. The formula is also probably based on annual salary or compensation rather than pay period compensation.

The employer cannot withdraw the funds - I don't see a distributable event that would allow for it, I could argue though that the excess could be counted toward the next plan year in suspense.

Any one see other options or issues with the suspense account?