401(k) Match Reduction

[Guest IraSue]

Received a memo from employer dated 3/20/07 stating 401(k) match is being reduced by half as of 4/01/07. Can anyone kindly tell me if this is sufficient notice to employees? I appreciate any input. Thank you!

[WDIK]

Is it a discretionary match, safe harbor match, other?

[Guest IraSue]

Is it a discretionary match, safe harbor match, other?

It's discretionary, I believe. In my career I have been a 401(k) administrator but now am in charge of IRAs so I have lost the ability to have knowledge right at hand. And this company does not give out much information and the HR-bots know nothing about it. The best part of their little memo is that employees have to contribute more now to receive the highest match and we have to have our changes in prior to 4/01/07. Used to be $1 for $1 up to 5% (very generous, I know). now as of 4/01/07, it will go to 50 cents for $1 up to 6%. So to take advantage of the new maximum match, I would have to change my deferrals from 5% to 6% and do so in less than two weeks time.

Can this be legal to give so little notice?

[JanetM]

Yes if the match is discretionary it is legal. Ask for a copy of the SPD and see what it says about the match.

[Guest IraSue]

Yes if the match is discretionary it is legal. Ask for a copy of the SPD and see what it says about the match.

Thank you JanetM!

I got hold of the SPD this morning and it does not say the match is disretionary. The SPD has a section titled, "Our Matching Contributions" and in that section after a description of how matching works with deferrals, says, "Any percentage chosen will apply for the entire plan year." The plan year is defined as 1/01 - 12/31. The next section heading is "Our Discretionary Contribution," which they have never made as long as I've been here. What do you think of that?

I emailed our HR dept. to ask how that statement in the SPD about the matching percentage applying for the entire plan year complies with the change on 4/01/07. No answer yet... It's so weird knowing more than the HR folks. I am positive they see my name on an email and do a collective groan, eyeroll and heavy sigh. Well, I gotta fight for my 50 cents!

Thank you for your time and response. I really appreciate it.

[Guest Pensions in Paradise]

You almost asked the right question. What you need to know is if there is an allocation requirement for the matching contribution. For example, do you have to complete a certain number of hours or be employed on the last day of the plan year to receive the matching contribution. If the answer is yes, then the employer can most definitely amend the matching contribution formula prior to the time a participant accrues the right to an allocation.

[RCK]

To add a different perspective here, I'm having a hard time with IraSue's annoyance with the fact that the match on the 6th percent has been raised from 0 to 50%--that she has only two weeks to change an election to get that incremental match.

[Locust]

The SPD may not be the last word - after all you have a subsequent employee notice that differs with it.

The way I look at it, the primary issue is whether the employee has the opportunity to change the deferral before the new matching rate applies. If so, that seems fair (maybe "fair" is not a neutral description, but what I mean is that the employee has not been misled about the match).

Of course you've got plan document and other technical views, but when it comes down to it, is it worth it for an employee to challenge an employer on a technicality?

[JanetM]

IRASue - PiP has a good point. Is there any "catch" (last day rule, 1000 hours) to get the match? I know you see this is an unfair, but to be realistic, any matching from the company is free money. Seems 2 weeks is plenty of time to change a single number in a payroll system.

Reductions could be result of business decision to reduce expense in tough business cycles.