Rate of Match - Benefit, Rights and Features

[SRM]

Assume Plan covers 2 groups of employees. The Plan provisions are the same for both groups of employees with the exception of the match formulas:

Group A - 50% match on the first 6% of compensation deferred (maximum match is 3% of compensation)

Group B - 50% match on the first 3% of compensation deferred (maximum match is 1.5% of compensation)

Questions:

1. Do you agree that these are separate rates of match that must be tested as rights and features for current availability and effective availability?

2. If yes, and assuming the coverage ratio for the rate of match for Group A is 10 NHCE short of passing current availability for the prior year, which of the following do you think would be acceptable correction measures (assume a corrective amendment will be prepared on a timely basis and filed with IRS for their approval):

A. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 3% of compensation so that the net increased match is $0.

I don't think this one has substance to qualify as an -11(g) amendment.

or

B. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 4% of compensation so that the net increased match is 0.5% of compensation (total match for this group is 2% of compensation).

I am not sure about this one since they are receiving the same match formula as Group A, but since they are not maximizing the deferrals at 6% of compensation, the increased match is less than 3% of compensation in total.

or

C. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume that the 10 NHCE selected are deferring 3% of compensation. Increase the match for the year to 100% up to 3% of compensation.

The argument here is that these employees would have contributed 6% of compensation if they had known that the match formula cap would have been 6% instead of 3%.

[SRM]

Any thoughts on this?

[Tom Poje]

It is unclear to me exactly what you are saying when you say 'replace formula from prior year...'

are you saying that the ADP test uses the prior year testing method?

I hadn't thought about it much, but I thought prior year method only referred to the ADP test and not to coverage. in fact there is nothing in the coverage rules I know of that says look at last year's nhce group and compare to this years HCE group.

A similar situation could arise if you are treating all HCEs as meeting the statutory exclusion for purposes of the ADP test - your coverage numbers could be different.

[SRM]

ADP and ACP Testing is not the concern.

My question relates to the plan failing current availability under benefits, rights and features for two separate match formulas that apply to two separate groups of participants.

I believe that the separate match formulas are other rights and features that must be tested for non discrimination under 1.401(a)(4)-4(e)(3)(iii)(G).

Match formula A (50% up to 6%) is a richer match than match formula B (50% up to 3%). The plans coverage ratio for the participants eligible for Match formula A does not pass current availability and must be expanded by a certain number of participants in order to pass current availability (benefits, rights and features non discrimination testing).

When I mention "replace formula from the prior year", I am referring to the participants that were eligible for match formula B that must be made eligible for match formula A so that the plan passes non discrimination (benefits, rights, and features) testing with regard to the separate match formulas.

The correction will occur after the end of the plan year, but before the end of the corrective amendment period available under 1.401(a)(4)-11(g).