Matching Contribution Formulae

[imchipbrown]

I'm getting involved with a take-over 401(k) Plan. One thing bothering me, which I've never seen, is the following match:

25% on the first 3%

50% on the next 3%

The prototype we use says the matching percentage must decrease as the % of comp increases.

Can't find any regs which make the above formula "illegal", though I bet it makes passing ACP more difficult.

Anyone?

Chip Brown

[Tom Poje]

nothing wrong with it, but...

and this one would be hard to prove one way or the other

BRF, effectively available.

certainly its current available, but if the NHCEs can't afford to defer more than 3% than one might argue it is not effectively available. howevr, if that happened, you probably wouldn't be able to pass ACP testing anyway.

[jaemmons]

I agree with Tom. However, if you are restating the plan document, you might want to go to the IRS and get their blessing on this. Anyone out there can correct me if I am wrong, but I don't know of any automatic reliance letters issued on this type of plan language option. It doesn't qualify as a "safe harbor" allocation to the match, which would be a requirement under the LRM's for prototype sponsors, and I don't know of any volume submitter docs that have an opinion letter on this type of match formula language. Therefore, I would view it as an IDP and submit to the IRS. (You may want to also do a little due diligency and review the prior year for effective avail)