Suspicious Match

[Guest LWilson]

We have a client whose 401(k) plan which allows for a discretionary match.

Have you ever heard of a situation where the employer provides the NHCEs with a 50% match, and the HCEs a 60% match? Sounds suspicious to me . . . Funny thing is, the plan passes ACP.

[Tom Poje]

I suppose you could write the document to do whatever you want, but if that was how it was worded I would like to see how they pass BRF.

[Guest LWilson]

We're thinking he probably stretched his interpretation of "discretionary." We've decided to make him take back that little 10% piece he shouldn't have given himself.

[RCK]

I always thought that the part that was discretionary was the total dollar amount, and that the actual allocation of that dollar amount was determined by the plan document.

RCK

[Guest LWilson]

I should clarify, this is a Putnam Plan Document - kind of a funny little thing. The Discretionary Match is defined as follows:

"The amount of Matching contributions made with respect to a participant will be V% of his Elective Deferrals." ("V" is later defined as variable).

I think the employer decided to give himself a different "V" than everyone else got . . .

[RCK]

and doesn't it say that V varies from year to year, but not from participant to participant?

[Guest LWilson]

Exactly. Which is why we're refunding the 10% he shouldn't have given himself, given he gave everyone else a 50% Match.

[Brian Gallagher]

if the PA wants to give the HCE's more money that the NHCE's then he may want to consider a new comparability profit sharing contribution. the drawback is that (almost) everyone will get money, not just those deferring.