Discretionary Match - Can Allocation be discretionary as well?

[Guest NewGuy]

I have a plan where the client wants a discretionary match. The client also insists that allocation formula be discretionary as well.

Is that allowed? Can I leave that section of the document blank?

[Guest NewGuy]

Oh, can the limitations be discretionay as well? Thanks.

[MWeddell]

The amount can be discretionary, but the plan document should state a predetermined allocation formula. Treas. Reg. 1.401-1(B)(1)(ii).

For example, the plan might state that the match is a discretionary amount allocated in proportion to elective deferrals made during the plan year not in excess of the first x% of each participant's compensation. In that case, you'd have to fill in what x is to have a definite allocation formula.

[Blinky the 3-eyed Fish]

Our document provider has an option for a matching formula that just states it is discretionary, without any reference to a anything other than that. It was approved by the IRS, so I would certainly say it is allowable.

[maverick]

A couple years ago I submitted a det. ltr request with both the amount of match, and the percent of deferrals that would be matched as "discretionary." The IRS bounced the request and told me that one or the other needed to be specified. Go figure. Maverick

[MWeddell]

I have also received favorable IRS determination letters on plan documents where the allocation formula for the match was not definite. However, that says more about the IRS review process than it does about what's in the IRS's own regulations.