Company Match

[Guest TimO]

I have a 401(k) client that is currently making a company matching contribution to their plan. It is a discretionary match that they now wish to discontinue -- as soon as possible. It appears that since it is a discretionary match there is nothing to stop them eliminating it prospectively; however, I have not seen anything in the regs regarding what type of notice may be required to do this.

Does anyone know if (1) a sponsor may stop a discretioanry match mid-year after they have announced it, and if so, (2) is notice required, and how much?

Any input is appreciated..

[QDROphile]

Make sure you take the period to which the match applies, e.g. annual, by quarter, by pay period. Also take into account when the match is set. Another way of looking at it is, when are the participants induced to defer in order to get the promised match?

[KJohnson]

You might want to look here:

http://benefitslink.com/boards/index.php?a...=ST&f=20&t=8418

and here:

http://benefitslink.com/boards/index.php?a...=ST&f=20&t=4889

I frankly think that this can be done, although some IRS individuals have informally disagreed as noted in the posts above. However, as QDROphile notes, you need to check your document to see what the "true up" period is for the match. For example if your plan sets the match on a plan year basis rather than a payroll to payroll basis and if you stop the match mid-year, you may be forced to perform some "reallocations" of amounts already contributed. (e.g. a participant who says I'm stopping deferrals after you stop the match may have to have some of his prior match reallocated if other participants continue deferrals because the match is based on an entire year of deferrals). If you have participant statements going out on a monthly or quarterly basis that reflect the match, then you may well be asking for trouble with regard to this reallocation. However, if your plan document does the match on a payroll by payroll basis there should not be a problem.

[four01kman]

If this is truly a discretionary match and no match has been declared for the period, there is nothing to be done. Discretionary means the employer will or will not make a contribution.

As noted above by K Johnson, if there has been an announcement of a match for the year (or for a lesser period), the match up to the end of the appropriate period has to be made, and then the discretionary match would end.

[Guest TimO]

Thanks, that gives me enough to go on. I appreciate the info..