ACP Test

[Guest AJR]

A plan allows for a discretionary match and does not begin contributing matching contributions until the middle of the plan year. Should the ACP test be calculated using compensation for the last half of the plan year? Or should full year compensation be used?

[ccassetty]

AJR:

Read your plan document.

Chances are it says total comp for the entire plan year except for those who became eligible during the year. For them compensation would be used from date of participation.

Whatever the document says, you must use that definition regardless of when the match started.

[austin3515]

I would also check the "computation period" for the match.

I'd say starting matching int he middle of a plan year probably causes problems. Discretionary matches are usually worded to be based on compensation and deferrals for the Plan Year, and likely doesn't acomodate willie nilli on/off matches during the year.

The only way I can see this being okay is if match is calculated based on payroll period deferrals (or month or quarter assuming the match is started on the first day of one of those). But again, I don't think this is typical of a discretionary match formula.

Also, many docs require the amount of the match to be communicated at the beginning of the Plan year.

Any other opinions?