Help needed with company stock match question

[Guest bbaudo]

We are consulting on a plan that:

1. Matches only if participants are deferring to company stock

2. The match is made only in company stock

3. The company discontinues match if participant stops deferring to company stock

We have only seen this type of match once before, and are looking for any research or statistics that would back up our recommending a change in their matching practice.

Has anyone seen this type of match, does it work effectively, and/or can you provide some guidance?

bbaudo

[QDROphile]

Really bad idea. Distance yourself from it to the extent possible.

To the extent it has any thinking behind it, the thinking is twisted.

[david rigby]

...and probably increases the likelihood of not passing the ADP test.

[Brian Gallagher]

...and don't forget coverage testing.

did this plan get a determination letter with that match?

wacky, wacky wacky!

[E as in ERISA]

Look at Regulations Section 1.401(a)(4)-4 re benefits, rights and features. In particular look at Regs Sec. 1.401(a)(4)-4(e)(3)(iii)(G) that indicates that each rate of match is a right or feature (and therefore has to be made available on a nondiscriminatory basis).

[2muchstress]

How is the document written? I would imagine that the document provides for a discretionary match, and the employer is trying to use his own definition of discretionary.

I have had several employers misinterpret the word discretionary and it is almost humorous to see what they can come up with.

[mbozek]

There is also an issue of whether the investment in co stock may be limited to 10% of the plan assets under ERISA 407(B)(2) if the plan requires that the ee contributions must be invested in er stock. I have reviewed 401(k) plans which provide for higher matching contribution percentages when ees invest in er securities, e.g., a 50% match instead of 25% match or permit the purchase of stock at a discount which have been approved by the IRS. Many of the S & P 500 companies(P & G, Coke, Phillip Morris) maintain 401(k) plans where more than 90% of plan assets are invested in co stock which is frequently available with a greater % or at a discount.