Match Caps

[Guest Michele @ MVP]

I use the Universal Pensions (UPI) adoption agreement. It asks to state a cap on matching contributions, either $ or %. Say the client elects to match on 6%. Then next year, only wants to match on 4%. Can a simple board resolution change the 6% to 4%? If they want to change this annually, again a simple board resolution BEFORE each plan year begins?

[Brian Gallagher]

I'm not familiar w/ that particular document, but is there a provision in the adoption agreement for anything like a discretionary match? If it doesn't, it sounds like the plan would have to be amended, because the AA is changing. Plus there's always the SPD/SMM's to consider.

[Guest Michele @ MVP]

The match is discretionary, but then the next item on the AA asks me to put in a match cap. I wonder if I leave this blank, then it works as the cap being discretionary as well.

Thanks Brian for the quick reply. I may ask UPI as well.

[Brian Gallagher]

On the prototype I work with, there is no $ or % for the discretionary match, only the regular match. I would certainly ask UPI. (Also, check the basic plan document; there may be something there.)

...bg

[Archimage]

It sounds like you may be able to put a ridiculously high amount in that blank and then you wouldn't have to amend the doc every year. However, I would check with the document provider to verify that is there intention. You could also do this and have the client write and sign this administrative procedure as their interpretation of the document to cover you and the client.

[Alf]

For communications with participants (and managing their expectations), I suggest stating the match cap. Legally, the match can be totally discretionary, but if you put it in the plan and want to change it, you either need to amend the plan before the plan year starts if there is no last day of year requirement to receive the match or amend it before the last day of the plan year if there is a last day of the year requirement to get a match.

Based on our experiences, employees try and defer just enough to get the maximum match and are not very happy when an employer decides at the end of the year that the match is going to be capped at a lower deferral % than in the past.

[Tom Poje]

years ago (1998) the issue of 'discretionary match' was discussed on PIX (Pension Information eXchange). I saved the notes on this one, and the basic comments were as follows:

Standard document that allows a discretionary match reads as follows: On behalf of each participant who is eligible to share in matching contributions, a discretionary matching contribution equal to a uniform percentage of compensation shall be made...

the client has decided how much $ they want to put in, then allocating it as a % of deferral and limited to a % of comp. It is my understanding that this is a problem. Do you agree?

all comments to the question were YES, It is a problem.

The reason, of course, is that all the document said was a uniform percentage of compensation. There was no mention of a cap. Therefore, placing a cap resulted in a failure to follow the terms of the document.

As to whether a corporate resolution can be made

Again the answer was YES, but must be made before the end of the year, otherwise you could end up with a cutback

[Guest Michele @ MVP]

I received an answer from my UPI rep....here is what he says..

That section of the Adoption Agreement does not need to be completed, but may be used by the employer to put an absolute limit on the match contribution. If using a discretionary formula or the "other" formula that doesn't contain a limit you may which to complete it as either a $ or %.

Many match formulas include a limit (ex. 50% up to 6% of comp) so that area becomes redundant in some cases and need not be completed.

Board Resolution-- You may use this to amend the AA, however the SPDs then need to be updated to reflect the change. :-)

Thanks everyone!

Michele