Changing the match formula in mid-year

[Santo Gold]

In a non safe harbor calendar year 401k plan, there is a non-discretionary tiered match formula. The employer would like to modify this formula in mid year (as of 7/1). I have not yet seen his proposed change, but it sounds like the match will be greater on the first 3 percent deferred, and smaller on > 3% deferred. Since the current match formula is written into the document, can it be changed in mid year if a portion of the match will be subsequently be smaller?

[JanetM]

Absolutely, you can change the formula at any time by amending the plan and sending notices to participants. If the target date is 7/01 you have plenty of time to communicate and amend.

[Santo Gold]

Janet M - Thanks for the reponse; I'm a little suprised it would be that easy. I was worried that since we have a set match formula in place at the beginning of the year and to change it in mid year would mean some participants could get a smaller match as a result of the change, that this would result in a cutback of benefits. Nothing to worry about?

[JanetM]

Match amounts can be changed for future amounts. What you can't do is wait till the end of the year and change it for past contributions.

Match amount is not one of the things included under the anti cutback rules. If it were PS would never be about to do anything but increase benefits.

[Blinky the 3-eyed Fish]

Match amount is not one of the things included under the anti cutback rules.

While I agree with Janet's conclusion, I don't with this statement. A match is subject to anti-cutback rules, it's just that it isn't a cutback if the match formula is decreased prospectively, which is the case here. A person has to defer salary to have the right to the match and you certainly can't defer future pay.

[Kirk Maldonado]

I have to disagree with Janet M. Treasury Regulation Section 1.411(d)-4, Q&A-1(d) provides as follows:

(d) Benefits that are not section 411(d)(6) protected benefits. The following benefits are examples of items that are not section 411(d)(6) protected benefits: * * *

(8) the allocation dates for contributions, forfeitures, and earnings, the time for making contributions (but not the conditions for receiving an allocation of contributions or forfeitures for a plan year after such conditions have been satisfied)

Thus, because the plan apparently does not condition the participant's right to receive an allocation upon being employed on the last day of the plan year and/or performing at least 1,000 hours of service, the participant's right to matching contributions accrues at the time he or she contributes to the plan. Accordingly, the right to the amount of matching contributions that had accrued as of the date of the plan amendment is a protected benefit so the rate of matching contributions with respect to those prior contributions cannot be decreased by a plan amendment.

[Santo Gold]

Kirk Maldonado: The employer does not want to retroactively reduce the match back to 1/1/05. Rather, they would like to amend the formula, effective 7/1/05 (the match is deposited each month). Would these actions be sustainable?

[JanetM]

That is what I meant. You can change the match going forward but now match accrued in the past. You never take away something that has already accrued - but you have every right to change the amounts in the future.

[Kirk Maldonado]

I had (wrongly) interpreted your original post as meaning that the change would be retroactive (to January 1). If the change is only prospective, then I agree with Janet M.