Changing Matching Contribution Rate

[Below Ground]

401(k) Plan has a discretionary match that is determined after close of the year. Data is provided for testing after March 15th deadline, so test failure results in both corrective distributions and Form 5330 Penalty Tax. Distributions are made and Form 5330 is filed. Following that time, Employer then decides to change match to a lower rate. Testing on new rate has smaller corrective distributions, and smaller penalty tax. Anybody have thoughts on this scenerio?

[WDIK]

Perhaps I am misunderstanding the scenario you describe, but how is it permissible to change the match rate after the fact?

[Below Ground]

I did not describe that correctly. Sorry. Let me try again.

Client gave us a formula that seemed to reconcile to the rate that they were funding during the year, with an amount still receiveable at year end (annual true-up). Computations were then done, including testing, using this rate. Representative of client "signed off" on allocation, saying this was correct rate, so corrective distributions were processed. Several weeks later, the client representative called back saying match formula provided was wrong, and a "lower rate" actually applied (actually, maximum match amount lower). In effect, the rate was not changed in actual practice, just the formula used for year end review and reconciliation.

Hope this is clear.