Changed accrual requirements at the end of the year

[Guest elirpa]

Can someone help me? I have a safe harbor 401k plan that has a safe harbor match as well as a discretionary match. The employer fully utilizes both matches; however with a last day and 1,000 hour requirement for the discretionary match - they fail ACP testing for the discretionary. To alleviate this problem we amended the plan to remove the accrual requirement for 2003, before the end of the year. Since this was a nonstandardized plan, with last day 1,000 hour requirement we could do this because we were not taking away a benefit from anyone.

My question is since we removed the accrual requirements for the discretionary match (anyone who defers receives a match), do we have to give a discretionary match contribution to any participant who deferred and were paid out prior to the date we amended the plan for 2003?

Since the amendment was not executed until late in the plan year, do I need to give a match to someone who terminated in January?

[Mike Preston]

Probably. It depends on the effective date of the amendment. If the effective date of the amendment was the first day of the plan year I don't see how you could avoid it. If the amendment was specifically worded to provide the match only to those who were employed on or after the adoption date, though, I think that would work, subject to the rules on non-discriminatory amendments. But you need to check and see what the amendment actually said.

[Guest Pensions in Paradise]

If the plan is a safe harbor 401(k) which satisfies the safe harbor match requirements, how do you fail ACP? By definition you automatically satisfy the ACP test if you satisfy the safe harbor match requirements. Or does the discretionary match not satisfy the safe harbor match requirements?

[Mike Preston]

You can have a discretionary match that does not require testing and hence is immune from failure or you can have a discretionary match that does require testing and therefore must satisfy the ACP test. I assumed that the discretionary match being discussed was one of the latter. I suppose it doesn't hurt to ask, though. Let's see what elirpa says.

[Tom Poje]

and, unless something is changed in the proposed regs, the discretionary match (since in this example an hours requirement is attached) will have to be tested when those regs go into effect in the future.

[chris]

Tom:

You mean that a safe harbor discretionary match (limited to 4% of participant's comp,....) will have to be tested going forward if the proposed regs. stay as they are?

[Tom Poje]

if there is an hours requirement or last day provision, then yes.

the proposed regs hold that an individual who gets zero has received a lesser rate than an hce, one of the requirements for a safe harbor match.

perhaps the IRS is saying that is the way it should have been interpreted in the past as well.

[Guest elirpa]

Thanks for your replies...

The match that I was refering to was a discretionary match and yes, because it is an additional match besides the Safe harbor match it is subject to ACP testing.

The discretionary match that was amended had a last day provision/1000 hour requirement, and after attending a seminar we learned that if a Safe harbor plan with SH match provides an additional match with accrual requirements that it would be subject to ACP testing.

The document that we used was a prototype document and in the special effective dates we indicated that the match accrual requirements were removed as of December 1, 2003. My argument is that the participant never accrued a benefit, because at the time of their termination they were not entitled to a contribution due to the employment on the last day requirement.

What are your opinions.