Matching Contributions Based on Partial Deferral?

[Leopurrd]

Hi All,

Long time lurker, first time poster!

I have a client who wishes to exclude the bonus from their plan. For compensation purposes, I can do this because they are on a non-standardized prototype. But, they also want to exclude the deferrals on this bonus from their match calculation (they do a flat % of deferrals, no cap.)

Is this allowed on a prototype document? I've tried Sal's books and found nothing; maybe I'm just a horrible researcher.

My opinion is that they would not be allowed to exclude the deferral, but then again, you can exclude catch up from the match calculation......

Thanks for any help you can give!

Vicki

[WDIK]

If they are excluding the bonus from compensation, how can there be deferrals/matches based on the bonus?

[Leopurrd]

WDIK,

makes sense. Sorry about that!

I guess what the issue is that bottom line, the employer wants to match on everything, but the deferral on the bonus. the original idea was to exclude bonus from comp, but that obviously won't help. And, I think that excluding only the deferral on the bonus may be discriminatory.

Do you know of any way to get around this with a prototype doc?

Thanks for your response.

[WDIK]

It would depend on the available language in the prototype document. For example, I think that the non-standardized prototype document sponsored by Accudraft allows different definitions of compensation for different contribution types.

[austin3515]

Is there by any chance an "Other" option for the caluclation of the match?

What would the implications be of amending the prototype to add this a) for the plan sponsor?, and b) for the TPA whose prototype is adopted? I know it reduces reliance on the opinion letter, but are there more practical issues as well?

The biggest thing to watch out for is 414(s), which discusses a discriminatory definition of compensation. For example, let's say the owner (and only HCE) just takes straight compensation, while the employees receive a hefty amount of bonus at year end depending on whether or not they meet targets. The definition of comp would llikely not meet 414(s), which in and of itself is not a problem - it just means you need to pass the ACP test using gross comp (including bonus). That may or may not be a problem.