fixed match by grouping- possible?

[pbarrett]

We are taking over a 401(K) plan that has appx 500 lower paid participants. There are no highlys or keys participating in the plan. Presently, the doc has a discretionary match. The employer contributes contributes 8% of pay per pay period as a match if the participant defers the minimum. (The minimum is $5.) Needless to say, a lot of participants are deferring $5 per pay.

The employer would now like to change the match formula and contribute by groupings.

Question #1

In general, assuming you can pass coverage and acp/adp testing etc., can a match be allocated by group similar to a new comp ps plan?

Question #2

This employer would like to give group A - 12% of comp and group - B 6% of comp. The only deciding factor on which group you are in is whether or not the employer pays for your spouse's health insurance. If you have single premium ins. you would get 12% if you have spousal coverage you would get 6% (we're not up to addressing children yet).

Question #3

If it can't fly as a match, how about as a new comp contribution? It would pass the gateway and other tests.

Appreciate any help here.

[Tom Poje]

if there are no HCEs participating, just what discrimination test are you going to fail?

[Tetsuro]

I agree with Tom. Either a match by grouping or nonelective contribution would be appropriate b/c of the absence of HCE's.

[Guest cynthiar]

I have a similar situation only there are HCE. They want to match either $30 per pay period or 2% up to 4%. They also want to require the participants to defer at least 4% before they can opt for the 2% match.

Can they require participants to defer a certain percentage to obtain a match? Also, do I have to perform a benefits rights and features test? If so...how do I go about this?

Most of the employees in this plan are low wage earners (less than $30,000) so by selecting $30 per pay period they end up with a match greater than 2%. They have 26 payrolls so a participant's salary would have to be greater than $39,000 to end up with a match greater than $780.

[pbarrett]

Tom,

I wasn't concerned about the testing- I was only giving the details. My concern is linking the match to the amount payment of the insurance premium paid. Also, would you suggest a fixed match based on group or just call it a discretionary match and state the amount that will be paid at the beginning of the year???? I'm probably just making a simple issue complicated.

Thanks,

Pat