Matching on a Payroll Basis, and 1,000 Hour Eligibility Requirement

[Christine Roberts]

Plan makes matching contributions on a payroll basis, but requires employees to work 1,000 hours of service in a given year to be eligible for matching contribution. No L/D requirement.

Demographics are such that there is only one HCE, and she will consistently meet the 1,000 hour requirement. Of the NHCEs, some will meet the 1,000 hour requirement later in the plan year than others, so their matching contribution will be based on a lower amount of compensation.

Dois pose a problem with respect to ACP testing? Employees will receive a uniform PERCENTAGE of compensation, but amount of compensation that match will be based on will vary somewhat due to staggered times at which they satisfy 1,000 hour requirement.

[stephen]

Doesn't the plan require you to match their compensation for the entire year? (Not just from when the employee reaches 1,000 hours)

[Blinky the 3-eyed Fish]

Christine, huh?

[Archimage]

I think a lot of providers run into the same problem you are having. It is a fault in the design of this plan. If your client wants to calculate match on a payroll basis I would suggest taking away the 1000 hour requirement for the match.

[Blinky the 3-eyed Fish]

I think the main fault of the plan Christine describes is it doesn't pass nondiscrimination and is not a viable plan design whatsoever.

Hence my prior, "Huh?".

[Archimage]

AH! I see what you mean now that I have re-read the post. I agree with Blinky. Maybe Christine is misinterpreting the document. Christine, you probably should be giving matching contributions to ALL participants regardless of the hours they are working. At the end of plan year you will have to determine who did not work 1000 hours and take care of these ineligible matching conributions in the manner the document says to handle excess annual additions.

[Christine Roberts]

Thanks for your frank comments.

Truth be told, this is in reference to a 403(B) plan but I don't think that really changes the issue in regards to the matching contribution.

So, then, if you make a matching contribution on a payroll basis, then at the end of the year you have to have a true-up or a disgorgement to correspond to the participant's satisfaction of (or failure to satisfy) the 1,000 hour requirement.