Discretionary Match in Formula and Considered Deferrals

[Dawn Hafner]

There are various message threads on this topic already, but I would like to get some up to date feedback.

We use a PPD (Corbel) prototype and the Corbel VS version that is similar to the PPD format. Both adoption agreements allow for a discretionary match formula to be combined with a discretionary amount.

"In determining a Participant's deferral contribution taken into account for the specified time period under the matching contribution formula, the following limitations apply:

Discretionary. The Plan Administrator will take into account the deferral contributions as a percentage of the Participant's Compensation as the EMployer determines.

How much leeway does this give the ER. If formula and amount considered are discretionary can they do different formulas by class, by years of service, by division?

We normally communicate the matching formula currently being used in a memo to ees, but wondering how much must be in document. This seems to give a lot of leeway. The basic document contains no additional language about the formula being definitley determinable. Using the double discretionary langauge in the document does not appear to be definitley determinable, but both plans have received favorable letters, and numerous users are utilizing these to restate plans currently.

Thanks for any input.

[Archimage]

I think it gives you some leeway but it sounds like you are leaning a little towards cross-testing a little. If you are including this then that would make the Plan an individually designed plan requiring an IRS determination letter.

[Guest Robin Vatalaro]

Dawn, assuming I understand your question, I had this very issue come up. I have a client whose match formula is graded based on years of service and the HCE's specifically are excluded from being match recipients.

I went around the bush and back and eventually ended up talking to some technical people at Corbel (I was using a prototype of an investment house but the underlying language was drafted by Corbel).

They told me specifically that you cannot get this "leeway" you speak of by simply checking the "discretionary match" box. I specifically asked if I could just designate the match as discretionary and then via memo actually outline the formula being used. Corbel said absolutely not.

Of course I have no cites, but thought this might be helpful to you.